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EXAMINING THE 340B DRUG PRICING PROGRAM 

HEARING 

BEFORE THE

SUBCOMMITTEE ON HEALTH 

OF THE

COMMITTEE ON ENERGY AND 

COMMERCE 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

MARCH 24, 2015 

Serial No. 114–25 

( 

Printed for the use of the Committee on Energy and Commerce 

energycommerce.house.gov 

COMMITTEE ON ENERGY AND COMMERCE 

FRED UPTON, Michigan 

Chairman 

JOE BARTON, Texas 

Chairman Emeritus 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

JOSEPH R. PITTS, Pennsylvania 

GREG WALDEN, Oregon 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

Vice Chairman 

STEVE SCALISE, Louisiana 

ROBERT E. LATTA, Ohio 

CATHY MCMORRIS RODGERS, Washington 

GREGG HARPER, Mississippi 

LEONARD LANCE, New Jersey 

BRETT GUTHRIE, Kentucky 

PETE OLSON, Texas 

DAVID B. MCKINLEY, West Virginia 

MIKE POMPEO, Kansas 

ADAM KINZINGER, Illinois 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILL JOHNSON, Ohio 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

LARRY BUCSHON, Indiana 

BILL FLORES, Texas 

SUSAN W. BROOKS, Indiana 

MARKWAYNE MULLIN, Oklahoma 

RICHARD HUDSON, North Carolina 

CHRIS COLLINS, New York 

KEVIN CRAMER, North Dakota 

FRANK PALLONE, JR., New Jersey 

Ranking Member 

BOBBY L. RUSH, Illinois 

ANNA G. ESHOO, California 

ELIOT L. ENGEL, New York 

GENE GREEN, Texas 

DIANA DEGETTE, Colorado 

LOIS CAPPS, California 

MICHAEL F. DOYLE, Pennsylvania 

JANICE D. SCHAKOWSKY, Illinois 

G.K. BUTTERFIELD, North Carolina 

DORIS O. MATSUI, California 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

JERRY MCNERNEY, California 

PETER WELCH, Vermont 

BEN RAY LUJA ́ N, New Mexico 

PAUL TONKO, New York 

JOHN A. YARMUTH, Kentucky 

YVETTE D. CLARKE, New York 

DAVID LOEBSACK, Iowa 

KURT SCHRADER, Oregon 

JOSEPH P. KENNEDY, III, Massachusetts 

TONY CA ́ RDENAS, California 

SUBCOMMITTEE ON HEALTH

JOSEPH R. PITTS, Pennsylvania 

Chairman 

BRETT GUTHRIE, Kentucky 

Vice Chairman 

ED WHITFIELD, Kentucky 

JOHN SHIMKUS, Illinois 

TIM MURPHY, Pennsylvania 

MICHAEL C. BURGESS, Texas 

MARSHA BLACKBURN, Tennessee 

CATHY MCMORRIS RODGERS, Washington 

LEONARD LANCE, New Jersey 

H. MORGAN GRIFFITH, Virginia 

GUS M. BILIRAKIS, Florida 

BILLY LONG, Missouri 

RENEE L. ELLMERS, North Carolina 

LARRY BUCSHON, Indiana 

SUSAN W. BROOKS, Indiana 

CHRIS COLLINS, New York 

JOE BARTON, Texas 

FRED UPTON, Michigan (ex officio) 

GENE GREEN, Texas 

Ranking Member 

ELIOT L. ENGEL, New York 

LOIS CAPPS, California 

JANICE D. SCHAKOWSKY, Illinois 

G.K. BUTTERFIELD, North Carolina 

KATHY CASTOR, Florida 

JOHN P. SARBANES, Maryland 

DORIS O. MATSUI, California 

BEN RAY LUJA ́ N, New Mexico 

KURT SCHRADER, Oregon 

JOSEPH P. KENNEDY, III, Massachusetts 

TONY CA ́ RDENAS, California 

FRANK PALLONE, JR., New Jersey (ex 

officio) 

(III) 

C O N T E N T S 

Page 

Hon. Joseph R. Pitts, a Representative in Congress from the Commonwealth 

of Pennsylvania, opening statement ................................................................... 1 

Prepared statement .......................................................................................... 2 

Hon. Gene Green, a Representative in Congress from the State of Texas, 

opening statement ................................................................................................ 3 

Hon. Fred Upton, a Representative in Congress from the State of Michigan, 

opening statement ................................................................................................ 5 

Prepared statement .......................................................................................... 6 

Hon. Frank Pallone, Jr., a Representative in Congress from the State of 

New Jersey, opening statement .......................................................................... 8 

Prepared statement .......................................................................................... 8 

WITNESSES

Diana Espinosa, Deputy Administrator, Health Resources and Services Administration, Department of Health and Human Services ............................... 9 

Prepared statement .......................................................................................... 12 

Answers to submitted questions ...................................................................... 76 

Krista M. Pedley, Director, Office of Pharmacy Affairs, Health Resources 

and Services Administration, Department of Health and Human Services 1

Debra A. Draper, Director, Health Care, Government Accountability Office ..... 18 

Prepared statement .......................................................................................... 20 

Answers to submitted questions ...................................................................... 95 

Ann Maxwell, Assistant Inspector General, Office of Evaluation and Inspections, Office of Inspector General, Department of Health and Human Services ......................................................................................................................... 36 

Prepared statement .......................................................................................... 38 

Answers to submitted questions ...................................................................... 102 

SUBMITTED MATERIAL

Documents for the record, 2 submitted by Mr. Pitts ............................................. 3 

Statement of Ascension, March 24, 2015, submitted by Mr. Green .................... 67 

Letter of March 24, 2015, from Daniel R. Hawkins, Jr., Senior Vice President, 

Public Policy and Research, National Association of Community Health 

Centers, to Mr. Upton, et al., submitted by Mr. Green .................................... 70 

Statement of Ryan White Clinics for 340B Access, March 24, 2015, submitted 

by Mr. Green ........................................................................................................ 73 

1Ms. Pedley did not offer an oral or written statement. 

2The information has been retained in committee files and also is available at http:// 

docs.house.gov/Committee/Calendar/ByEvent.aspx?EventID=103082. 

(1) 

EXAMINING THE 340B DRUG PRICING 

PROGRAM 

TUESDAY, MARCH 24, 2015 

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON HEALTH, COMMITTEE ON ENERGY AND COMMERCE, Washington, DC. 

The subcommittee met, pursuant to call, at 10:02 a.m., in room 

2322, Rayburn House Office Building, Hon. Joseph R. Pitts (chairman of the subcommittee) presiding. 

Members present: Representatives Pitts, Guthrie, Shimkus, Murphy, Blackburn, Lance, Griffith, Bilirakis, Long, Ellmers, Bucshon, 

Brooks, Collins, Upton (ex officio), Green, Butterfield, Castor, Sarbanes, Schrader, Kennedy, Pallone (ex officio). 

Staff present: Clay Alspach, Chief Counsel, Health; Gary Andres, 

Staff Director; Noelle Clemente, Press Secretary; Michelle Rosenberg, GAO Detailee, Health; Chris Sarley, Policy Coordinator, Environment and the Economy; Adrianna Simonelli, Legislative Clerk; 

Heidi Stirrup, Policy Coordinator, Health; Josh Trent, Professional 

Staff Member, Health; Gregory Watson, Staff Assistant; Traci 

Vitek, Detailee, Health; Ziky Ababiya, Policy Analyst; Christine 

Brennan, Press Secretary; Jeff Carroll, Staff Director; Tiffany 

Guarascio, Deputy Staff Director and Chief Health Advisor; Meredith Jones, Director, Outreach and Member Services; Rick Kessler, 

Senior Advisor and Staff Director, Energy and the Environment; 

Rachel Pryor, Health Policy Advisor. 

Mr. PITTS. The subcommittee will come to order. 

The Chair will recognize himself for an opening statement. 

OPENING STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS FROM THE COMMONWEALTH 

OF PENNSYLVANIA 

Today we will hear from witnesses about the 340B Discount 

Drug Program. Section 340B of the Public Health Service Act requires drug manufacturers who wish to participate in Medicaid to 

provide discounted outpatient drugs to eligible healthcare organizations known as covered entities who serve uninsured, low-income 

populations. 

This program designed to stretch scarce Federal dollars is critically important for indigent and low-income patients who may otherwise be unable to access needed drugs or afford treatment. 

Eligible covered entities are defined in statute and include HRSA 

supported health centers and look-alikes, Ryan White Clinics, State 

AIDS Drug Assistance programs, Medicare and Medicaid disproporVerDate Mar 15 2010 09:32 Aug 06, 2015 Jkt 037690 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X25X340B\114X25X340BPENDING WAYNE
2 

tionate share hospitals, children’s hospitals, and other safety-net 

providers. 

The Health Resources and Services Administration, HRSA, the 

agency that administers the 340B Drug Discount Program, indicates that approximately 11,000 covered entities currently participate in the program, with more than 1 in 3 hospitals participating. 

Some 800 or more manufacturers also participate in the program. 

Although the program was created in 1992, recent years have 

seen significant changes and expansions of the program. For example, from 2001 to 2011, the number of covered entities roughly doubled. Since HRSA issued guidance related to contract pharmacies 

in 2010, their use in the program has grown exponentially. 

Today we will hear from three witnesses who are experts on the 

program. The witnesses from GAO and the Inspector General’s Office have both helped author reports advising Congress on the program and continue to monitor HRSA’s management of the program. 

GAO and OIG have reported that unclear program guidelines 

and inconsistent oversight is partially responsible for some of the 

challenges the program currently faces in being accountable to taxpayers, patients, and stakeholders. Covered entities and manufacturers understandably cannot comply with rules that are unclear. 

We benefit today from hearing directly from HRSA about the 

agency’s day-to-day work to respond to the findings of those reports 

as they seek to more effectively oversee and efficiently operate the 

340B Program. 

HRSA has taken steps and made improvements in recent years, 

so we are glad they can be here today. Recent developments have 

hamstrung their ability to promulgate regulations to better manage 

the program, so we look forward to hearing from them. 

One thing I hope we can all agree on is that to preserve the 340B 

Program and ensure that it is serving those who most need help, 

greater oversight and transparency is needed to increase the program’s accountability. Today’s hearing marks the first step in that 

direction. 

I would like to welcome all of our witnesses today. We look forward to your testimony on this important subject. 

[The prepared statement of Mr. Pitts follows:] 

PREPARED STATEMENT OF HON. JOSEPH R. PITTS

Today, we will hear from witnesses about the 340B Drug Discount Program.Section 340B of the Public Health Service Act (PHSA) requires drug manufacturers, who wish to participate in Medicaid, to provide discounted outpatient drugs 

to eligible health care organizations known as ‘‘covered entities’’ who serve uninsured, low-income populations. 

This program, designed to stretch scarce Federal dollars, is critically important 

for indigent and low-income patients who may otherwise be unable to access needed 

drugs or afford treatment. 

Eligible covered entities are defined in statute and include HRSA-supported 

health centers and look-alikes, Ryan White clinics and State AIDS Drug Assistance 

programs, Medicare/Medicaid Disproportionate Share Hospitals, children’s hospitals, 

and other safety net providers. 

The Health Resources and Services Administration (HRSA), the agency that administers the 340B drug discount program, indicates that approximately 11,000 covered entities currently participate in the program, with more than one in three hospitals participating. Some 800 or more manufacturers also participate in the program. 

3 

1The information has been retained in committee files and also is available at http:// 

docs.house.gov/Committee/Calendar/ByEvent.aspx?EventID=103082. 

Although the program was created in 1992, recent years have seen significant 

changes and expansions of the program. 

For example, from 2001 to 2011, the number of covered entities roughly doubled. 

Since HRSA issued guidance related to contract pharmacies in 2010, their use in 

the program has grown exponentially. 

Today we will hear from three witnesses who are experts on the program. The 

witnesses from GAO and the Inspector General’s office have both helped author reports advising Congress on the program, and continue to monitor HRSA’s management of the program. 

GAO and OIG have reported that unclear program guidelines and inconsistent 

oversight is partially responsible for some of the challenges the program currently 

faces in being accountable to taxpayers, patients, and stakeholders. Covered entities 

and manufacturers understandably cannot comply with rules that are unclear. 

We benefit today from hearing directly from HRSA about the agency’s day-to-day 

work to respond to the findings of those reports as they seek to more effectively 

oversee and efficiently operate the 340B program. HRSA has taken steps and made 

improvements in recent years, so we are glad they can be here today. Recent developments have hamstrung their ability to promulgate regulations to better manage 

the program, so we look forward to hearing from them. 

One thing I hope we can all agree on, is that to preserve the 340B program and 

ensure that it is serving those who most need help, greater oversight and transparency is needed to increase the program’s accountability. Today’s hearing marks 

the first step in that direction. 

I would like to welcome all of our witnesses today. We look forward to your testimony on this important subject. 

Mr. PITTS. And at this point, I have a UC request today. There 

are 31 documents that I would like to submit for the record. There 

are letters, articles, policy statements, reports, testimony, and various white papers on the 340B program included submitted by a 

wide range of stakeholders we have shared. Without objection, so 

ordered. 1

Mr. PITTS. And I yield the rest of my time to Ms. Blackburn. 

Mrs. BLACKBURN. Thank you, Mr. Chairman. 

And I concur with everything that you have had to say on this. 

We all appreciate the 340B Program. We do have questions and we 

do have concerns. And we know we are responsible for the oversight. We want to be diligent in that manner. I think the rapid 

growth in the program has raised concerns including the adequacy 

of oversight, so I appreciate the hearing. 

Also questions on accountability and how that accountability may 

vary from grantees who receive 340B funds and hospitals who also 

receive those funds. Additional questions have been raised concerning the definition of a patient and how those 340B revenues 

are distributed. 

And so I thank you all for being here. 

And, Mr. Chairman, I yield back the balance of my time. 

Mr. PITTS. The Chair thanks the gentlelady, and now recognizes 

the ranking member of the subcommittee, Mr. Green, for 5 minutes 

for an opening statement. 

OPENING STATEMENT OF HON. GENE GREEN, A 

REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS 

Mr. GREEN. Thank you, Mr. Chairman. 

And good morning and thank you all for being here today. And 

I want to thank our witnesses for coming here to testify. 

4 

The 340B Drug Pricing Program was created by Congress to help 

safety-net providers care for their most vulnerable patients and afford drugs that would otherwise be out of reach. Since its inception 

in 1992, stakeholders and policymakers have been discussing and 

debating the intended purpose and appropriate scope of the 340B 

Program. 

I thank the chairman for having this hearing today to examine 

this critical program and the role that it plays in our healthcare 

system. 

It was the hope of policymakers when designing 340B that lower 

drug prices would enable safety-net providers to stretch scarce Federal resources as far as possible to reach more patients and provide 

a more comprehensive service through these savings. 

The law does not specify how these savings incurred under 340B 

discounts must be used by covered entities, a point that has been 

brought up by both opponents and proponents of the program, yet 

a GAO study in 2011 confirmed that at large, covered entities use 

these savings to provide more care to more patients including 

medications that would otherwise be unaffordable to those they 

serve. 

For example, Houston Harris Health System which primarily 

serves the indigent population in Houston, Harris County, Texas 

saves approximately $17 million a year through participating in 

the 340B Drug Program. Harris Health uses savings from the program on patient care services which includes the cost of treatment, 

administration, management of services and facilities, and improving access to quality healthcare for our community. 

Harris Health System has, like other safety-net hospitals across 

the country, provide access to cost-effective, quality healthcare delivered to all the residents of Harris County regardless of their 

ability to pay. 

There is always more patient need than we have the capacity to 

provide and the community’s access to care depends upon the contribution of every possible source of funding such as the 340B Drug 

Program. 

I cannot underscore enough how important the 340B Program 

continues to be for hospitals and other entities that provide care to 

under-served patients in every district across the country. It is a 

key part of the multi-prong approach to provide all individuals with 

access to quality care. 

With that said, the program has grown significantly and oversight is appropriate to ensure that it is working properly. Since 

1992, the 340B Program has expanded significantly both directly 

due to the categories of covered entities and indirectly due to the 

broader eligibility criteria for existing categories. 

According to the GAO, the number of 340B covered entities has 

doubled in a little over 10 years to more than 16,500 sites. Similarly, the number of contract pharmacy agreements has expanded 

dramatically over the last decade, particularly since April of 2010 

when 340B entities were allowed to contact multiple pharmacies. 

The 2011 GAO study found that the Health Resources and Services Administration or HRSA oversight of 340B was, quote, ‘‘inadequate to provide reasonable assurance that covered entities and 

5 

drug manufacturers are in compliance with the program requirements,’’ unquote. 

HRSA has taken great steps to implement recommendations 

made by the GAO in its 2011 study including conducting selected 

audits and clarifying 340B nondiscrimination policy. But additional 

administration action and potentially additional authorities may be 

needed for HRSA to conduct proper oversight of such a large and 

important program. 

I understand HRSA has been working to establish a formal set 

of regulations to standardize the definition of an eligible patient, 

compliance requirements for contract pharmacy agreements, clarify 

hospital eligibility criteria, and eligibility of off-site facilities. 

Steps such as updating HRSA guidance on the definition of a patient could address challenges that arise from different interpretations of the current guidance. This would further program integrity 

efforts and make certain that the 340B Program is achieving its intended outcomes and maintaining the long-term viability. 

Congress should let HRSA release its guidance and analyze its 

impact before making changes to the 340B Program that would 

harm safety-net hospitals and our vulnerable patients. I know 

HRSA strives to achieve the best outcomes for those they serve. 

The agency does great work to fulfill its mission of improving access to healthcare services for people who are medically underserved. 

As we examine the 340B Program and oversight efforts during 

today’s hearing, it is important to remember that for 23 years, 

340B’s mission has been to lower drug costs for safety-net providers 

so they can buy more comprehensive services and reach more individuals. 

The program enables providers to decide how to best serve their 

communities through obtaining and leveraging savings from manufacturers so more patients can receive more care in their communities. 

I thank the agency for their continued efforts to implement and 

oversee 340B and GAO and OIG for their work and look forward 

to the hearing. 

And, Mr. Chairman, I would also like to ask unanimous consent 

to place into testimony a statement submitted by Ascension on the 

340B Program. 

Mr. PITTS. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. PITTS. The Chair now recognizes the chair of the full committee, Mr. Upton, 5 minutes for an opening statement. 

OPENING STATEMENT OF HON. FRED UPTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN 

Mr. UPTON. Good morning. Since its inception in 1992, the 340B 

Program has provided critically important pharmaceutical drugs at 

a discounted price to a range of entities providing healthcare to 

some of our Nation’s most needy and most vulnerable patients. 

These facilities include community health centers, Ryan White 

Clinic, State AIDS Drug Assistance programs, as well as a range 

of qualifying hospitals. 

6 

Through the years, the program has allowed covered entities to 

stretch scarce resources to better serve millions of patients in 

Michigan and across the country who are uninsured, under-insured, or dependent on programs like Medicaid and Medicare. 

I have seen firsthand the great work that this program does in 

my district in southwest Michigan. From the Bronson Health System in Kalamazoo, to Lakeland in Berrien and Cass Counties, to 

Allegan General Hospital in the north, to numerous family health 

centers, the 340B Program has ensured that many of my underserved constituents have access to affordable, life-saving medicines 

that they otherwise would not be able to afford. 

There is no doubt that the 340B Program has played an important role in helping reduce costs while also extending access. 

I am pleased that this committee today will have the opportunity 

to learn more about some of these issues facing the 340B Program. 

This committee has not held a hearing on the program since 2005, 

but there have been some very important changes to the program 

in recent years. 

The program was expanded, as we know, under the Affordable 

Care Act and more types of providers were allowed to participate 

as covered entities. Since HRSA guidance in 2010, there has been 

a rapid expansion of the use of contract pharmacies. 

GAO and the Inspector General’s Office have raised some concerning findings for sure about the mixed successes of current oversight of the program that need to be examined. And more recently, 

HRSA, the agency charged with overseeing the 340B Program, has 

found itself unable to successfully promulgate binding regulations, 

thus hampering its ability to effectively manage the program as we 

would like to see it. 

As a strong supporter of the 340B Program, I believe that there 

has been and will continue to be an important role for this program 

to continue. However, some of the findings from the careful work 

conducted by the GAO and the IG’s Office are of concern. 

I appreciate GAO, OIG, and HRSA coming today to help the committee better understand the challenges before us. We look forward 

to learning what steps HRSA has taken to strengthen the program 

for all patients, the uninsured, seniors, Medicaid patients, and the 

insured patients which are served by covered entities. 

It is in the interest of good Government to see program integrity 

strengthened, the program’s operating parameters clarified, and 

the program’s rules consistently enforced. 

I believe that the biggest supporters of the program should be 

the biggest champions of ensuring that the 340B Program is well 

run in a manner that is transparent and accountable to all stakeholders. 

And I yield back the balance of my time. 

[The prepared statement of Mr. Upton follows:] 

PREPARED STATEMENT OF HON. FRED UPTON

Since its creation in 1992, the 340B program has provided critically important 

pharmaceutical drugs at a discounted price to a range of entities providing health 

care to some of our Nation’s most needy and vulnerable patients. These facilities 

include community health centers, Ryan White clinics, State AIDS Drug Assistance 

programs, as well as a range of qualifying hospitals. 

7 

Through the years, the program has allowed covered entities to stretch scarce resources to better serve millions of patients in Michigan and across the country who 

are uninsured, underinsured, or dependent on programs like Medicaid and Medicare. I’ve seen the great work this program does in my district. From the Bronson 

Health System in the Kalamazoo area, to Lakeland in Berrien and Cass Counties, 

to Allegan General Hospital in the north, to the numerous Family Health Centers, 

the 340B program has ensured that many of my underserved constituents have access to affordable, lifesaving medicine. There’s no doubt that the 340B program has 

played an important role in helping reduce costs while also extending access. 

I am pleased that our committee today will have the opportunity to learn more 

about some of the issues facing the 340B program. This committee has not held a 

hearing on the program since 2005, but there have been important changes to the 

program in recent years. • The program was expanded under the Affordable Care Act and more types of 

providers were allowed to participate as covered entities. • Since HRSA guidance in 2010, there has been a rapid expansion of the use of 

contract pharmacies. • GAO and the Inspector General’s office have raised some concerning findings 

about the mixed successes of current oversight of the program. • More recently, HRSA—the agency charged with overseeing the 340B program— 

has found itself unable to successfully promulgate binding regulations, thus hampering its ability to effectively manage the program. 

As a strong supporter of the 340B program, I believe there has been, and will continue to be, an important role for the program. However, some of the findings from 

the careful work conducted by the GAO and Inspector General’s Office are of concern. I appreciate GAO, OIG, and HRSA coming today to help the committee better 

understand the challenges HRSA and the program face. 

We look forward to learning what steps HRSA is taking to strengthen the program for all the patients—the uninsured, seniors, Medicaid patients, and the insured patients—which are served by covered entities. It is in the interest of good 

Government to see program integrity strengthened, the program’s operating parameters clarified, and the program’s rules consistently enforced. I believe that the biggest supporters of the program should be the biggest champions of ensuring the 

340B program is well-run in a manner that is transparent and accountable to all 

stakeholders. 

I look forward to hearing from our witnesses. 

Mr. PITTS. Anyone on the majority side seeking time? We still 

have 1 minute. 

Mrs. Ellmers, you are recognized. 

Mrs. ELLMERS. Thank you, Mr. Chairman. 

And thank you to our panel for being here. 

And, Mr. Chairman, thank you so much for holding this hearing 

on 340B. 

I just want to start off by saying that I realize HRSA received 

several million dollars in our last appropriations bill and appropriate steps you have taken to increase oversight in the program. 

For the record, I would like to make it clear that I understand 

and appreciate the importance of the 340B Program and the critical role it plays for many patients in the U.S. To be clear, this is 

a program set up by the Federal Government, yet the Federal Government does not know where the money is going. That is a big 

concern. 

For example, an analysis by IMS Institute for Healthcare 

Informatics calculated prices of 10 common chemotherapy treatments and found that hospitals charge 189 percent more on average or nearly triple what the same infusion would cost an independent doctor’s office. 

These are the questions that we have. My hope is that we are 

going to get transparency and we are going to understand how the 

program is being utilized. Covered entities participating in the 

8 

340B Program must be fully transparent and accountable for dispensing medicines and ensuring the program’s integrity. 

As the program has exploded in growth over the past 2 decades, 

Congress should have a clear understanding as to how that money 

is being spent to ensure that it is still serving its intended purpose. 

Thank you very much. I yield back the remainder of my time. 

Mr. PITTS. The Chair thanks the gentlelady, and now recognize 

the ranking member of the full committee, Mr. Pallone, 5 minutes 

for an opening statement. 

OPENING STATEMENT OF HON. FRANK PALLONE, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF NEW JERSEY 

Mr. PALLONE. Thank you, Mr. Chairman. 

In 1992, a bipartisan Congress established the 340B Program to 

expand access to affordable healthcare by limiting the cost of outpatient drugs paid for certain safety-net providers. And since that 

time 22 years ago, the 340B Program has played a critical role in 

our healthcare system to ensure that low-income and vulnerable individuals have access to affordable healthcare. 

In supporting our vital Nation’s safety net from community 

health centers to safety-net hospitals, HIV clinics, and hemophilia 

treatment centers, the 340B Program has made the difference between patients getting access to life-saving healthcare services and 

drugs or going without. 

And Congress’ intention when this program was created was to 

help covered entities expand their capacity to serve their patients. 

Through savings from the drugs purchased at a discounted rate, 

340B providers are able to stretch scarce resources to reach more 

eligible patients and provide more comprehensive health services. 

It is without a doubt that the resources provided through the 

340B Program have a direct impact on augmenting patient care 

throughout the country and will continue to play an integral role 

in the future by supporting the mission of safety-net providers to 

serve low-income, uninsured, and under-insured patients. 

Of course, for this program to continue to function as Congress 

intended, proper oversight of 340B is of paramount importance. 

And I think we can all agree here today that the mission of this 

program is sound and a continued emphasis on program integrity 

will make the 340B Program stronger now and in coming years. 

So I wanted to thank the chairman again for calling this longoverdue hearing. I don’t know if anybody on my side, I don’t think, 

wants any additional time, so I will just yield back the balance of 

my time, Mr. Chairman. 

[The prepared statement of Mr. Pallone follows:] 

PREPARED STATEMENT OF HON. FRANK PALLONE, JR. 

I would like to thank the chairman for calling this hearing on the 340B Program. 

And thank the witnesses for their testimony here today. 

In 1992, a bipartisan Congress established the 340B Program to expand access 

to affordable health care by limiting the cost of outpatient drugs paid for certain 

safety net providers. 

Since that time 22 years ago, the 340B Program has played a critical role in our 

health care system to ensure that low-income and vulnerable individuals have access to affordable health care. In supporting our vital Nation’s safety net—from comVerDate Mar 15 2010 09:32 Aug 06, 2015 Jkt 037690 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 F:\114THCONGRESS\114X25X340B\114X25X340BPENDING WAYNE
9 

munity health centers to safety net hospitals to HIV clinics and Hemophilia treatment centers—the 340B Program has made the difference between patients getting 

access to lifesaving health care services and drugs or going without. 

Congress’ intention when this program was created was to help covered entities 

expand their capacity to serve their patients. Through savings from the drugs purchased at a discounted rate, 340B providers are able to stretch scarce resources to 

reach more eligible patients, and provide more comprehensive health services. 

It is without a doubt that the resources provided through the 340B Program have 

a direct impact on augmenting patient care throughout the country and will continue to play an integral role in the future by supporting the mission of safety net 

providers who serve low-income, uninsured, and underinsured patients. 

Of course, for this program to continue to function as Congress intended, proper 

oversight of the 340B program is of paramount importance. I think we can all agree 

here today that the mission of this program is sound, and a continued emphasis on 

program integrity will make the 340B program stronger now and in the coming 

years. 

I thank the chairman again for calling this long-overdue hearing, and I yield back 

the balance of my time. 

Mr. PITTS. All right. The Chair thanks the gentleman. 

As always, written statements from all Members, opening statements, will be made part of the record. 

We have 1 panel today and I will introduce them in the order 

that they will present testimony. 

First, Ms. Diana Espinosa, Deputy Administrator at the Health 

Resources and Services Administration. She is accompanied by 

Commander Krista Pedley, the Director of the Office of Pharmacy 

Affairs at the Health Resources and Services Administration; Dr. 

Debbie Draper, Director of Health Care at the Government Accountability Office; and Ms. Ann Maxwell, the Assistant Inspector 

General for Evaluation and Inspections in the Office of the Inspector General at HHS. 

Thank you all for coming. Your written testimony will be made 

a part of the record. You will each be given 5 minutes to summarize your testimony. And at this point, the Chair recognizes Ms. 

Espinosa for 5 minutes for her summary. 

STATEMENTS OF DIANA ESPINOSA, DEPUTY ADMINISTRATOR, 

HEALTH RESOURCES AND SERVICES ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN SERVICES, ACCOMPANIED BY KRISTA M. PEDLEY, DIRECTOR, OFFICE OF 

PHARMACY AFFAIRS, HEALTH RESOURCES AND SERVICES 

ADMINISTRATION, DEPARTMENT OF HEALTH AND HUMAN 

SERVICES; DEBRA A. DRAPER, DIRECTOR, HEALTH CARE, 

GOVERNMENT ACCOUNTABILITY OFFICE; ANN MAXWELL, 

ASSISTANT INSPECTOR GENERAL, OFFICE OF EVALUATION 

AND INSPECTIONS, OFFICE OF INSPECTOR GENERAL, DEPARTMENT OF HEALTH AND HUMAN SERVICES 

STATEMENT OF DIANA ESPINOSA 

Ms. ESPINOSA. Good morning, Chairman Pitts, Ranking Member 

Green, and Members of the subcommittee. I appreciate the opportunity to appear before you today to discuss the steps we have 

taken to strengthen the oversight of the 340B Drug Pricing Program and the challenges we face. 

The Health Resources and Services Administration or HRSA is 

the primary Federal agency within the Department of Health and 

10 

Human Services charged with improving access to healthcare services for people who are medically under-served. 

HRSA works to strengthen our primary care infrastructure, bolster the healthcare workforce, and achieve health equity. HRSA 

strives to achieve the best outcomes for those we serve and make 

the best use of taxpayer dollars. To that end, program integrity is 

essential to all HRSA programs including the 340B Program. 

The program was authorized to stretch scarce Federal resources 

by substantially reducing the cost of covered outpatient drugs to 

participating eligible entities also known as covered entities. In fiscal year 2013, covered entities saved an estimated $3.8 billion on covered outpatient drugs. While the law does not specify 

how 340B Program savings must be used, covered entities have indicated that they use the savings to provide more care to more patients and provide medications to those who may not otherwise be 

able to afford them. 

As part of our oversight of the 340B Program, HRSA verifies that 

both 340B covered entities and manufacturers are in compliance 

with program requirements. The Congress provided HRSA with an 

additional $6 million in fiscal year 2014 which has allowed us to 

expand our oversight. 

In 2012, HRSA began conducting selective audits and clarified 

the 340B nondiscrimination policy. As a result, GAO closed 2 recommendations related to those issues from its 2011 report. The remaining 2 recommendations direct HRSA to clarify hospital eligibility requirements and the definition of a 340B patient. HRSA 

plans to address them in a proposed guidance we will be issuing 

for public comment later this year. 

The HHS Office of the Inspector General recommended that 

HRSA develop a pricing system and we expect this pricing system 

to be operational later this year. 

HRSA uses a comprehensive approach to ensure compliance by 

covered entities. An entity must apply for participation in the program and recertify annually. Additionally, HRSA conducts riskbased and targeted on-site audits of covered entities. 

Entities are required to develop and implement corrective action 

plans to respond to audit findings. Summaries of the findings are 

posted for the public on the HRSA Web site and this information 

is also used to help inform our technical assistance efforts. 

HRSA also has mechanisms in place to ensure manufacturers 

comply with statute and offer the 340B ceiling price to covered entities. In addition, we are currently developing protocols for conducting additional audits of manufacturers. 

Let me now turn to the forthcoming HRSA omnibus proposed 

guidance and speak to our rule-making authority. As many of you 

know, last year, HRSA planned to issue a proposed omnibus regulation for the 340B Program to establish additional clear, enforceable policy to advance our program oversight. 

Before HRSA was scheduled to issue the omnibus proposed regulation, the U.S. District Court issued a ruling invalidating the 340B 

orphan drug regulation finding that HRSA lacked explicit statutory 

authority to issue it. In light of this ruling, HRSA withdrew the 

omnibus proposed regulation from Office of Management and Budget review. 

11 

There are 3 areas of the 340B statute with explicit regulatory authority, calculation of the 340B ceiling price, imposition of manufacturer civil monetary penalties, and implementation of a dispute 

resolution process. 

We expect this year to issue notices of proposed rule making on 

all 3 of these areas. We lack explicit regulatory authority for the 

other provisions in 340B Program statute. Absent that authority, 

HRSA intends to release a proposed omnibus guidance for public 

comment later this year. We will then consider the public comment 

and finalize the guidance. 

HRSA will continue to use the full extent of agency authorities 

in its efforts to ensure the integrity of the 340B Program. With 

support from the Congress, we have strengthened our management 

and operations to manage this program as effectively and efficiently as possible. 

I appreciate the opportunity to testify today and look forward to 

your questions. Thank you. 

[The prepared statement of Ms. Espinosa follows:] 

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Mr. PITTS. The Chair thanks the gentlelady. 

Commander Pedley, do you have an opening statement? 

Ms. PEDLEY. I do not. 

Mr. PITTS. All right. Dr. Draper, you are recognized for 5 minutes. 

STATEMENT OF DEBRA A. DRAPER 

Ms. DRAPER. Chairman Pitts, Ranking Member Green, and Members of the subcommittee, I appreciate the opportunity to be here 

today to discuss the 340B Program including issues concerning its 

oversight. 

Administered by HRSA, the 340B Program was initially created 

in 1992 with various legislative changes in the ensuing years. 

While participation is voluntary, there are strong incentives to do 

so. 

For participating entities such as federally qualified health centers and certain hospitals, substantial cost savings, 20 to 50 percent of the cost of outpatient drugs, can be realized through the 

program. For drug manufacturers, participation is required to receive Medicaid reimbursement. 

The 340B Program has seen significant growth in recent years. 

According to HRSA, for example, there were over 11,000 unique entities participating as of January 2015, a 30 percent increase since 

2008. Additionally, spending on 340B drug purchases was estimated at $7.5 billion for 2013, up from $6 billion for 2011. 

My comments today focus on inadequacies in 340B Program 

oversight that we identified in our September 2011 report as well 

as progress HRSA has made in implementing related recommendations. 

We found that HRSA primarily relied on participating entities 

and manufacturers to self-police and ensure their own compliance 

with program requirements. Beyond that, HRSA engaged in few 

other oversight activities of the program. 

At the time of our review, for example, the agency had never conducted audits of participating entities to ensure compliance with 

the program. We found that HRSA’s guidance was often inadequate, increasing the risk for interpretation of requirements that 

might result in misuse of the program. 

For example, HRSA’s guidance was not specific in the practices 

drug manufacturers were to follow to ensure that drugs were equitably distributed to both participating and nonparticipating entities 

when distribution was restricted, such as when a drug was in short 

supply. 

Additionally, HRSA’s guidance on the definition of a patient did 

not clearly define when an individual was considered eligible for 

discounted drugs under the program. 

Furthermore, HRSA had not issued guidance specifying the criteria for participation in the program for hospitals that were not 

publicly owned or operated. 

To address these oversight inadequacies, we made a number of 

recommendations to ensure the appropriate use of the 340B Program. And in response, HRSA has taken actions to implement 

them. 

19 

We recommended that HRSA conduct audits of participating entities to better ensure compliance including ensuring that 340B 

drugs are not being diverted to ineligible patients. In response, 

HRSA began conducting audits of participating entities which they 

have done since 2012. 

Through these audits, instances of noncompliance have been 

identified including violations related to drug diversion. The agency 

has developed a process to address noncompliance through corrective action plans. Among other things, participating entities may be 

required to repay manufacturers if they inappropriately receive discounts. 

We recommended that HRSA provide more specific guidance on 

cases in which drug manufacturers restrict the distribution of 

drugs at 340B prices. In response, HRSA issued updated guidance 

in 2012 which outlined the agency’s policy for manufacturers who 

intend to restrict the distribution of a drug. 

Although HRSA took steps to address our other two recommendations, it has not yet implemented them. We recommended 

that HRSA provide more specific guidance on the definition of a patient eligible for drug discounts under the 340B Program. We also 

recommended that HRSA issue guidance to clarify the criteria that 

hospitals not publicly owned or operated must meet to be eligible 

for participation in the 340B Program. 

HRSA planned to address both of these recommendations in a 

comprehensive regulation which had been developed and submitted 

to OMB in 2014. However, a Federal Court ruling narrowly defined 

HRSA’s statutory rule-making authority for the 340B Program 

which prompted the agency to withdraw its comprehensive regulation. 

HRSA officials told us that they expect to issue guidelines that 

will address these remaining recommendations this fiscal year. 

Moving forward, it is essential that HRSA continue its oversight 

activities including monitoring and audits of 340B Program participants. Because of the complex nature of and significant growth in 

the program, it is also critical that program requirements are clearly and explicitly laid out in guidance or regulations. Otherwise, 

much is left to interpretation, increasing the risk of misuse of the 

340B Program. 

Mr. Chairman, this concludes my opening remarks. I am happy 

to answer any questions. 

[The prepared statement of Ms. Draper follows:] 

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Mr. PITTS. The Chair thanks the gentlelady, and now recognizes 

Ms. Maxwell 5 minutes for opening statement. 

STATEMENT OF ANN MAXWELL 

Ms. MAXWELL. Good morning, Chairman Pitts, Ranking Member 

Green, and other distinguished Members of the subcommittee. I am 

pleased to join you today to discuss the integrity and the effectiveness of the 340B Drug Discount Program. 

This program allows safety-net providers to purchase outpatient 

drugs at a discount from drug manufacturers. Specifically the law 

establishes a maximum ceiling price that drug manufacturers are 

allowed to charge these providers. 

To ensure robust program integrity, the OIG has recommended 

numerous actions to improve this program. In response to OIG and 

GAO recommendations as well as congressional action informed by 

those recommendations, HRSA has strengthened its oversight, but 

there is more that could be done to strengthen program integrity. 

OIG work shows some continuing challenges. These challenges 

affect 340B providers like community-access hospitals, community 

health centers, critical-access hospitals, and children’s hospitals, as 

well as State Medicaid agencies and drug manufacturers. 

OIG’s work highlights two major areas of concern. One is lack of 

transparency in the program and the other is a lack of clarity in 

program guidance. 

With respect to transparency, key stakeholders are in the dark. 

Neither providers nor State Medicaid agencies have all the information needed to ensure the integrity of 340B transactions. 

OIG recommends three steps HRSA can take to increase transparency and ensure the program achieve its goals. The first two 

have to do with sharing ceiling prices. We recommend that HRSA 

shares ceiling prices with providers. This will allow providers to ensure they are not being overcharged by drug manufacturers. 

We also recommend that HRSA shares ceiling prices with State 

Medicaid agencies. This will allow State Medicaid agencies to ensure they are not overcharged when they reimburse 340B providers 

for Medicaid patients. Making this happen would require a new authority from Congress. 

Finally, we recommend greater claims transparency. HRSA 

should further improve tools intended to make 340B claims transparent to Medicaid. Medicaid agencies need this information to protect drug manufacturers from providing rebates on drugs that have 

already received an up-front discount through the 340B Program. 

In addition to the lack of transparency, program guidance lacks 

clarity, failing to keep up with the evolving and complex marketplace. One key change that has taken place over the past 5 years 

is a growing reliance on retail pharmacies. 

In retail pharmacy settings, we found that providers made different determinations on what prescriptions were eligible for the 

discount. Let me illustrate that with an example. 

Let’s imagine a doctor sees a patient at a community health center. Later that same doctor sees the same patient at her private 

practice. If that doctor prescribes a drug to that patient at her private practice, is that prescription eligible for the 340B discount? 

37 

One provider we talked to in our study said yes. Another provider in our study said no. And yet another provider said maybe. 

So who is right? We couldn’t tell based on current guidance. 

HRSA’s guidance addresses patient eligibility, leaving room for 

interpretation as to which of a patient’s prescriptions might, in 

fact, be eligible for the program. 

Furthermore, guidance doesn’t address how to handle uninsured 

patients at retail pharmacies. We found that because of the way retail pharmacies operate, uninsured patients may end up paying full 

price for their prescriptions. 

We believe it is important that HRSA update program guidance 

to more clearly and specifically define patient eligibility as well as 

address other complexities introduced by the use of retail pharmacies. Without more clarity, it is hard to determine or enforce 

compliance. 

We appreciate and share your interest in the integrity and the 

effectiveness of the 340B Program. Towards that end, we have ongoing work in this area that we plan to issue later this year and 

can share with you at that time. 

At this time, I am happy to be of assistance if you have any questions. Thank you. 

[The prepared statement of Ms. Maxwell follows:] 

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Mr. PITTS. The Chair thanks the gentlelady. 

And we will now begin questioning. I will recognize myself 5 

minutes for that purpose. 

First for the GAO. Dr. Draper, in your report, you noted that 

using the DSH adjustment percentage as part of the 340B eligibility criteria for hospitals has the effect of making eligibility for 

340B expand as more people become insured due to broader Medicaid coverage. 

Since your report was written, we have seen the uninsured rates 

decline at hospitals in States that have expanded Medicaid. 

The question is, do you think it makes sense for hospitals in 

those States to gain full access to 340B just as their charity care 

burden is decreasing due to patients gaining Medicaid or do you 

think there might be another metric for 340B eligibility that could 

work better than the DSH metric to help ensure the program 

reaches the hospitals that are truly serving a disproportionate 

share of uninsured and vulnerable patients? 

Ms. DRAPER. Well, it is probably best if I first explain what DSH 

is. It is actually an inpatient indicator. The 340B Program is an 

outpatient program. DSH is actually the sum of the percentage of 

Medicare inpatient days attributable to patients entitled to both 

Medicare Part A and Supplemental Security Income and the percentage of total inpatient days attributable to patients eligible for 

Medicaid but not eligible for Medicare Part A. 

So it really is an inpatient indicator and it is sometimes used as 

a proxy for uncompensated care or the amount of low-income clients a particular facility serves. 

So the question is an interesting one. And part of the issue is 

that it is a difficult question to answer because much has changed 

in the healthcare landscape over the last several years since the 

340B Program was created in 1992. 

One of the big things, of course, is the healthcare reform that 

was recently enacted which provided coverage for more people than 

originally was the case when the program was initially established. 

However, I think the bigger question is, what is the intent of the 

340B Program. And there is a lot of uncertainty or lack of clarity 

around what is this program intended to do. 

In our prior work when we issued our 2011 report, there were 

a lot of varying interpretations of what the 340B Program was. 

HRSA talks about the program. And the purpose of the program 

is to enable covered entities to stretch scarce Federal resources to 

reach more patients and provide more comprehensive services. And 

this was based on the committee report for the House Energy and 

Commerce that accompanied the—when this was first created in 

1992. 

Others believe that this is a program to assist low-income individuals in need of medications. And while it does that, there is no 

criteria in terms of patient eligibility, no criteria related to level of 

income. So it could benefit anyone, any level of income as long as 

they meet the other criteria for an eligible patient. 

And I can just tell you when we conducted our work in 2011, we 

found a range of payer mixes in the hospitals that we interviewed. 

We asked them about their Medicaid and uninsured payer mix and 

it ranged anywhere from 15 percent to 85 percent. 

48 

So it is really all over the board, and I think it is just really 

being able to add more clarity. It is important to add more clarity 

and more specificity to what is the intent of the program, what is 

it intended to do. 

Mr. PITTS. Thank you. 

Ms. Espinosa, under the 340B Program, prisons and jails are not 

340B covered entities eligible to purchase drugs under the 340B 

Drug Pricing Program. However, according to HRSA’s prime vendors Web site, in some case, quote, ‘‘State law or other arrangements create programs where a covered entity provides healthcare 

services to incarcerated persons such that the incarcerated persons 

can be considered patients of the entity eligible for 340B drugs,’’ 

end quote. 

In these cases, to receive 340B drugs, incarcerated persons must 

meet the 340B patient definition. But given HRSA’s own statements about the lack of a clear, enforceable standard definition of 

the patient, this rings a bit hollow. 

What is HRSA doing to address this issue? 

Ms. ESPINOSA. The definition of a patient is a key aspect of our 

oversight practice. And we plan to address that in the omnibus proposed guidance that we will be issuing later this year. We understand that clarifying the patient definition is essential to oversight 

and it is a priority for us. We will clarify it to the greatest extent 

that we can within our ability. 

Mr. PITTS. How many covered entities provide healthcare services to incarcerated persons? 

Ms. ESPINOSA. I don’t think we have that specific data point with 

us, sir, but certainly we can provide it to you in follow-up. 

Mr. PITTS. My time is expired. The Chair recognizes the ranking 

member, Mr. Green, 5 minutes for questions. 

Mr. GREEN. Thank you, Mr. Chairman. 

Ms. Espinosa, HRSA was given more funding for the past two 

budget cycles for program integrity activities in the 340B Program. 

Can you detail the actions that were taken with this funding? 

Ms. ESPINOSA. Yes, sir. We use the funding to strengthen our 

oversight using various strategies. We have increased the number 

of audits that are performed and we have also used it to hire auditors. Those audits are conducted by auditors in one part of HRSA 

that work together with program staff. So we have that check and 

balance of different parts of our organization that can kind of discuss the issues and ensure that we are applying a uniform standard. 

We have also strengthened and modernized the system, the 340B 

system that we use for keeping track of eligible entities and their 

compliance. Frankly, we had a lot of disparate systems and we 

have been working to connect them all to help facilitate our oversight and use different pieces of information to check against each 

other and also—— 

Mr. GREEN. Let me just—— 

Ms. ESPINOSA. Sure. 

Mr. GREEN. Have you shown any savings and the audits have 

been useful to HRSA, additional audits? 

Ms. ESPINOSA. The additional audits are always useful to us because they help us understand the areas where we can be helpful 

49 

and provide additional assistance to the covered entities to provide 

technical assistance on how to comply. So they are always helpful 

to us in that regard as well as identifying any potential issues that 

need to be corrected. 

Mr. GREEN. Is it too early to quantify what those audits did and 

the savings or reallocation of funds? 

Ms. ESPINOSA. We have not summed the information from the 

audits in that fashion. 

I think, ask my colleague Commander Pedley if that is information that we have available that we could potentially—— 

Ms. PEDLEY. In terms of savings, where it comes into play is if 

we do find a covered entity, for example, has diversion or duplicate 

discounts, they are now required to repay manufacturers. 

So there is money exchanged there. HRSA does not get involved 

in the amounts of money that are involved through that process, 

but we do ensure that they repay and have a corrective action plan 

in place moving forward. 

Mr. GREEN. So there is no direct savings to the Federal Government to actually reimburse the manufacturers? 

Ms. PEDLEY. Correct. 

Mr. GREEN. OK. Well, my next question is, do you need additional Federal appropriations, that is where I was looking for, to 

carry forward with the remaining recommendations from GAO and 

OIG? 

Ms. ESPINOSA. We are moving forward with the IG and GAO recommendations. As I mentioned, the pricing system will be operational later this year with the resources that we already have. 

And we are moving forward to clarify the guidance. 

We have requested in the President’s budget an increase to continue to expand our oversight to get greater coverage of both covered entities and manufacturers to ensure that they are meeting 

the program requirements. 

Mr. GREEN. OK. 

Ms. ESPINOSA. So we have requested additional funds, but we are 

moving forward on the IG and GAO recommendations with our current budget. 

Mr. GREEN. OK. Both today and in the past, Congress has 

weighed in a lot about the program integrity and oversight of 340B. 

I want to ask you directly today what were the specifics of the 

court decision last year that resulted in HRSA pulling back from 

the so-called mega regulations from the Office of Management and 

Budget, and I would like specifically what regulations HRSA can 

issue in light of the court decisions on 340B? 

Ms. ESPINOSA. Uh-huh. So the court decision was not based on 

the merits of the orphan drug regulation but rather on the method 

that we—the court found that we did not have explicit rule-making 

authority for orphan drugs. And so as a result, we have, as I mentioned, pulled back the proposed regulation that we had in process 

and we are developing that through guidance. 

The three areas where we do have explicit rule-making authority 

are civil monetary penalties for manufacturers, dispute resolution 

process, and—— 

Ms. PEDLEY. And the ceiling price. 

Ms. ESPINOSA [continuing]. The ceiling price. 

50 

Mr. GREEN. OK. So I guess for practical purposes under current 

law, unless it is one of these three items mentioned, HRSA is prohibited from issuing regulations on the 340B Program? 

Ms. ESPINOSA. Yes, sir. The court ruling was very clear that 

without explicit rule-making authority, HRSA cannot issue regulations. 

Mr. GREEN. Mr. Chairman, I have some other questions that I 

would like to submit, but I would like that last one for us to consider. And I yield back my time. 

Mr. PITTS. The Chair thanks the gentleman, and now recognize 

the gentleman from Illinois, Mr. Shimkus, 5 minutes for questions. 

Mr. SHIMKUS. Thank you, Mr. Chairman. 

Welcome. It is good to have you. And it is always good that we 

look at a program that was established a long time ago, especially 

when there is some interest in rural America. When you have 

small rural hospitals and federally qualified health clinics, it has 

been very, very helpful. 

But we also know that that is not true in every case. And so it 

is important to, you know, follow the money and see the qualifications and the payment structures. 

So I want to go to Dr. Draper. On covered entities who participate in the 340B Program through grants are required to follow 

strict reporting requirements about how the funds are used. However, DSH hospitals do not have a similar requirement. The OIG 

previously found a significant difference in how community health 

centers support needy patients through contract pharmacies compared to DSH hospitals. 

Have any of your research, have you been able to do work to 

track revenue generated by 340B prescriptions and what 340B entities do with those dollars? 

Ms. DRAPER. It is really likely to vary by facility because it is not 

a program requirement that facilities track how they use the revenue generated from the 340B Program. I will say that—— 

Mr. SHIMKUS. Let me, just to have a discussion, based upon the 

intent of the original law, I mean, wasn’t there basically intent that 

the revenue be provided to be helpful to the low-income population? 

Ms. DRAPER. For our past report, the report that we issued in 

2011, we did interview entities including hospitals and other like 

community health centers and other grantees. And it was a small 

sample of entities, but they were all reporting using the revenues 

generated consistent with their missions. 

So, for example, they use the revenues to provide more comprehensive services in terms of case management services or patient education. Some facilities reported using the revenue to expand services to other locations. 

So they all reported using it consistent with their missions, 

which is required for grantees like community health centers and 

other types of grantees. It gets a little bit more difficult to track 

for hospitals just because of the complex nature of those organizational environments. 

Mr. SHIMKUS. And that is a great statement. So there are differences based on the type of eligible entity in the reporting? 

Ms. DRAPER. There are differences in just how they use the 340B 

Program, yes. 

51 

Mr. SHIMKUS. And the reporting. And so the follow-up debate is 

really, should be now, I think you alluded to, the complexity of hospitals may not be as easy to identify where the benefit goes to, but 

I think part of our internal debate is really? 

Ms. DRAPER. Well, this might provide some help because the majority of growth in the 340B Program has really been in hospitals. 

As of January, there were just over 2,000 unique entities, which 

represented about 20 percent of the total unique entities. But if you 

add on their affiliated sites or outpatient clinics, it does represent 

about 51 percent of the total 340B sites. 

HRSA report told us that about 78 percent of all current 340B 

drug purchases are made by DSH hospitals. So the majority of the 

spending is through the DSH hospitals. 

Mr. SHIMKUS. And just following up on this line of questioning, 

don’t you think just as we debate the program and the benefits, information provided by all users of the program regardless of the entity would be helpful in us making a determination of the credibility of the program and the value to the identified population? 

Ms. DRAPER. I think that it is important for the program to ensure that the program is working as intended and benefitting the 

intended populations. 

Mr. SHIMKUS. Ms. Maxwell, do you want to add anything to that? 

Ms. MAXWELL. Yes. Our work points to a need for greater transparency not exactly the way that you are talking about, but I do 

believe we have concerns about program integrity that then compromise the ability of the program to achieve its goals. So more 

clarity around how the savings are used would allow us to understand the benefits of the program. 

Mr. SHIMKUS. And, Ms. Espinosa, any comments on this? 

Ms. ESPINOSA. Yes. I wanted to just offer a clarification. So the 

program requirements that have been discussed, for example, on 

the health centers, I mean, those are in the health center statute. 

So the 340B Program overall does not impose any requirements 

on recipients regarding how they use the savings. It is in the case 

where they are paired together with other grant programs and so, 

for example, the health centers. In that program, there is a requirement that any savings or revenue generated in the program 

benefit the grant, so—— 

Mr. SHIMKUS. Yes. My time is expired, but I guess that is the 

point of a hearing to identify if you want to do a legislative fix to 

make sure there is greater transparency and give you the authority 

to do that. 

Ms. ESPINOSA. Sure. I just wanted to clarify where the—— 

Mr. SHIMKUS. I know. That is what we are looking at. 

So thank you, Mr. Chairman. Yield back. 

Mr. PITTS. The Chair thanks the gentleman, and now recognize 

the ranking member of the full committee, Mr. Pallone, 5 minutes 

for questions. 

Mr. PALLONE. Thank you, Mr. Chairman. 

My questions are for Ms. Espinosa. Congressional history states 

that the 340B Drug Pricing Program was created to help designated healthcare providers stretch scarce resources to provide 

more comprehensive care to more patients. So, in other words, the 

program was established to support these designated providers. 

52 

You stated in your testimony that this is still the intent of the 

program. But for the record, can you provide a practical example 

of how the structure of the 340B Program has helped providers to 

get patients more comprehensive services? 

Ms. ESPINOSA. Sure. The way the program works is that we 

could use a health center example, you know, a patient that is insured may get a prescription at a health center. That prescription 

is purchased by the health center at a 340B price, which has a discount. 

And then the health center is able to charge that patient’s insurer, a third-party insurer for the full price. So that margin, 

which, as has been discussed, is about 25 to 50 percent of the drug 

cost, that helps to support the cost of the health center running the 

pharmacy, even just having a pharmacy. 

And in the cases with the health centers where there are additional savings beyond just operating their pharmacy, many have 

reported that they use them to enhance services. One example was 

on patient education—so educating patients on drug interactions, 

something that is very important for people who have multiple 

chronic conditions—and expanding hours of pharmacies. Those are 

the types of services that we hear the health centers and many of 

the other grantees report that they use the funding for. 

Mr. PALLONE. OK. Thanks a lot. 

It is my understanding that HRSA intends to issue a mega guidance which deals with many of the outstanding program integrity 

issues that are being raised today. And you touched on this somewhat in your testimony. 

However, I wanted to ask you, can you describe in more detail 

the items that HRSA will tackle in the forthcoming guidance and 

how those items relate to the GAO and OIG recommendations that 

we have heard today? 

Ms. ESPINOSA. Sure. As I mentioned, the patient definition will 

be addressed in the proposed omnibus guidance. That relates both 

directly to the GAO recommendation and also to some of the IG’s 

findings as far as being able to track prescriptions. 

There is also language on hospital eligibility that we would like 

to include in proposed guidance. And just to mention that these 

will all be put out for public comment because we do value the 

input from stakeholders and others. 

A third area is contract pharmacies, guidelines on contract pharmacies. I think those are kind of the big key areas and then there 

are other aspects of policy that we would use the opportunity to 

clarify where we can. 

Mr. PALLONE. Is the guidance on these outlier issues that GAO 

and OIG identified an adequate, long-term solution in your opinion? 

Ms. ESPINOSA. Well, sir, we will continue to oversee this program 

using all the tools that we have available to us. Certainly we see 

the guidance as bolstering our efforts. I think that we will need to 

see, you know, if additional tools were available, we would certainly use those as well. 

Mr. PALLONE. And then what about the difficulties, other difficulties with enforcing guidance in the absence of rule-making authority? 

53 

Ms. ESPINOSA. Generally rule making allows an agency to be 

more specific about its requirements and that is clearly something 

that has been identified by both the GAO and IG. So greater specificity, clarity on the requirements. It also has a stronger enforcement ability than guidance. So, yes, overall, rule making is a 

stronger enforcement tool than guidance. 

Mr. PALLONE. Let me just get 1 more question. Well, the auditing 

practices HRSA has undertaken over the past couple of years have 

gone a long way towards improving program integrity. And I understand that audits are risk based and targeted. 

But could you describe in a little detail how HRSA’s risk-based 

methodology helps to best target which of those entities to audit? 

Ms. ESPINOSA. So we have been in—the risk-based criteria take 

into account the level of complexity of the program. So understanding that covered entities that have more sites dispensing prescriptions are going to be more complex and will require greater 

oversight. 

So our risk-based criteria take into account the number of sites 

that a covered entity has as well as the number of contract pharmacies. So those are two examples of things that might trigger us 

to select a covered entity for an audit. 

Mr. PALLONE. Thank you. 

Thank you, Mr. Chairman. 

Mr. PITTS. The Chair thanks the gentleman, and now recognize 

the gentleman from Virginia, Mr. Griffith, 5 minutes for questions. 

Mr. GRIFFITH. Thank you, Mr. Chairman. 

Do appreciate this hearing. I am learning a lot and that is why 

I like coming to these hearings. But let me ask some questions on 

some of the answers that have come up. 

Ms. Espinosa, you indicated that you only had rule-making authority on civil penalties, dispute resolution, and ceiling price. Does 

that mean you don’t have rule-making authority on what constitutes a 340B patient? 

Ms. ESPINOSA. That is right. We do not have explicit rule-making 

authority on that. 

Mr. GRIFFITH. And when did the court case that defined this 

come down? 

Ms. ESPINOSA. It was over the summer. 

Mr. GRIFFITH. So summer of 2014? 

Ms. ESPINOSA. Yes. 

Mr. GRIFFITH. All right. And you pulled back your omnibus guidance that you were working on at the time? 

Ms. ESPINOSA. At the time, we were working on a regulation. 

Mr. GRIFFITH. OK. All right. But how much difference is there 

particularly—and I am looking at defining the patient under 

340B—how much difference would there be between your regulation and your guidance? It seems to me you just change a few 

words and you are ready to go on that portion of it. Wouldn’t that 

be true? 

Ms. ESPINOSA. Well, not according to our attorneys. But I think 

essentially it keys into the fact that there is different enforcement 

authority associated with each one. And because of that, we cannot 

be as perhaps clear or definitive in the requirements—— 

Mr. GRIFFITH. Well, I understand the court case—— 

54 

Ms. ESPINOSA [continuing]. Depending on what the rule—— 

Mr. GRIFFITH [continuing]. Got in the way, but it still bothers 

me, and this is a criticism of the Federal Government as a whole, 

that the recommendations came out in 2011 and even with the 

guidance, if you hadn’t had the court case or the rules, you probably were looking at late 2014 or early 2015. A student could get 

an undergraduate degree in that period of time and we are having 

a hard time defining what a patient is in that same period of time. 

And I love lawyers. I am one. But sometimes you have just got 

to move forward with common sense and you might be held back 

by that. Also, sometimes you don’t need to have an omnibus. 

The definition of a patient seems to be a problem GAO pointed 

out. Why not get that one moved along and let some of the more 

complicated things stay behind for the harder work, get the simple 

things done quickly? 

I do want to congratulate you, Dr. Draper, on a small point that 

is 1 of my pet peeves. Thank you for listing the Medical College of 

Virginia in your bio because so many people think that it is all 

VCU. And, of course, they are united, but there wouldn’t be a U 

in VCU if it hadn’t been for the Medical College of Virginia being 

added to the Richmond facility. So thank you for listing that and 

appreciate your hard work on this. 

Ms. DRAPER. Thank you. 

Mr. GRIFFITH. Are there other suggestions you think that would 

be simple things that they could work on and get them out more 

quickly that Ms. Espinosa ought to be focused on in the short run 

as opposed to some of the more difficult things? 

Ms. DRAPER. Well, one of the things I mentioned in my testimony 

was that this is a very complex program. You have a lot of different 

types of entities and no one entity looks like another type of entity. 

So it is a very complex program. And the growth in the program 

in recent years has been really significant. 

So I think those factors really make it clear that the program 

rules and regulations really need to be very clear and explicitly laid 

out either in guidance or in regulation. But on top of that, I can’t 

stress enough the importance of continuing oversight and enhancing the oversight to ensure that program participants are using the 

program as intended. 

Mr. GRIFFITH. And let me say this to Ms. Espinosa: Thank you 

so much for your comments, but we are here for a reason. And if 

the court said you didn’t have authority, I would think that we 

would be willing to give you—now, we have the same problem. Everybody wants an omnibus bill. But I would think that we would 

give you authority to define what a 340B patient is if you all wanted to ask for it. 

Ms. Maxwell, let’s go to you. We have got the national trends in 

healthcare provider consolidations where a hospital goes out and 

buys up an outpatient clinic and then takes a clinic perhaps that 

is break even but once they qualify that clinic as a part of their 

hospital, they can get 340B money. 

Can you tell me what problems you see with that because a 

Berkeley research group said that that led to about $200 million 

in additional costs for the Federal Government? Your comments? 

55 

Ms. MAXWELL. That is an area that we have not looked at yet 

in the Office of Inspector General, so I don’t really have a lot of 

data at my disposal to comment on that topic. 

Mr. GRIFFITH. All right. Well, I appreciate it. 

My time is just about up. Thank you all for being here and thank 

you so much for an interesting hearing. 

I yield back. 

Mr. PITTS. The Chair thanks the gentleman, and now recognize 

the gentlelady from Florida, Ms. Castor, 5 minutes for her questions. 

Ms. CASTOR. Well, thank you, Mr. Chairman, for calling this 

hearing. 

I want to start by saying that 340B is a lifesaver for so many 

hard-working Americans. Whenever I visit children’s hospitals or 

community health centers or safety-net hospitals back home in 

Florida, they emphasize to me how important 340B is to meeting 

their mission of taking care of families and to ensuring that the 

cost of pharmaceuticals doesn’t put care out of reach for so many. 

So I really appreciate the work that all of you are doing to ensure that 340B is functioning as intended, that the program has integrity, that money is being spent appropriately. 

So thank you, HRSA, for following up on the important recommendations of GAO and the Office of Inspector General and because in 2011, GAO made recommendations. They said the discounts offered in the 340B Program provide substantial benefits, 

but HRSA has got to improve its oversight. 

So in 2012, HRSA began doing both risk-based and targeted audits. Is it true, Ms. Espinosa, you did 51 audits in 2012? 

Ms. ESPINOSA. Yes. 

Ms. CASTOR. That is correct? 

And then to my colleagues, thank you for working on a bipartisan basis to give HRSA the funds last year, an additional $6 million to support program integrity efforts. 

I understand that now in 2015, the agency is on track to do 200 

audits; is that correct? 

Ms. ESPINOSA. Two hundred and ninety-five. 

Ms. CASTOR. Two hundred and ninety-five. 

And, Dr. Draper, can you confirm that they have started doing 

the audits and they have been able to ratchet up year over year? 

Ms. DRAPER. Yes. In 2012, they did 51. They went to 94 the next 

year and 99. And then they told us that it is actually 200, so 200 

audits—— 

Ms. ESPINOSA. Yes. I am sorry. I misspoke. 

Ms. DRAPER [continuing]. This fiscal year. So we are happy to see 

that. Prior to our work, no audit had been done of any participating 

entities, so we see that they are working to implement that recommendation. 

Ms. CASTOR. Good. 

Ms. Espinosa, when Congress created the 340B initiative in 

1992, it intended that eligible providers use the 340B drugs for any 

patient of the entity regardless of insurance status. 

For the program to have any meaningful value to providers and 

the patients they serve, 340B providers must be able to generate 

56 

savings by using 340B drugs for all eligible patients including 

those with insurance. 

So as noted in the GAO report, these savings are then used to 

cover the cost of providing comprehensive healthcare services to 

more vulnerable patients or those who would struggle to afford 

high-priced pharmaceuticals. 

My understanding is that the law does not nor was it ever intended to require that discounted drugs only be provided to uninsured patients or that program savings only be used to lower the 

cost of drugs or health services for uninsured patients. 

Do you agree with that? 

Ms. ESPINOSA. Yes, that is correct. The law does not specify how 

the savings are to be used, and it also does not specify the status 

of any of the patients that could potentially benefit from the program. 

Ms. CASTOR. And that goes back to what I hear and I know other 

Members hear from all of the children’s hospitals, safety-net hospitals, health centers, Ryan White Centers that the reason why 

340B is so important to their overall mission. 

I also wanted to ask a different question. Ms. Maxwell, we talk 

a great deal about compliance on the part of covered entities and 

HRSA’s work to ensure proper program integrity. 

However, I am curious about how we actually know that manufacturers are offering the 340B price for drugs fairly to all entities 

because there have been press reports in the past that manufacturers are overcharging for 340B drugs. 

In OIG’s review of these issues, have you found evidence of manufacturers overcharging for 340B products? 

Ms. MAXWELL. Yes. Our work looking at the oversight of 340B 

spans back about a decade. In our early work in 2005, we did, in 

fact, find instances of manufacturers overcharging. At that time, it 

was 13 percent of interactions we found actually had been overcharged resulting in $13.9 million for the month that we looked at 

which is why our recommendations continue to be to allow for 

greater transparency, to share those prices with the providers so 

they know they are not being overcharged. 

We also have an outstanding recommendation to improve 

HRSA’s oversight of how manufacturers calculate the 340B ceiling 

price as well as doing spot checks of transactions so they know that 

the correctly calculated prices are what, in fact, are being charged. 

Ms. CASTOR. Thank you very much. 

I yield back. 

Mr. PITTS. The Chair thanks the gentlelady, and now recognize 

the gentleman from Missouri, Mr. Long, 5 minutes for questions. 

Mr. LONG. Thank you, Mr. Chairman. 

And thank you all for being here today. 

Ms. Espinosa, let me start with you. There are 435 Members of 

Congress, and approximately half of the Members of Congress were 

not here 5 years ago. 

HRSA has yet to share 340B ceiling prices with covered entities 

since it was provided that authority to do so 5 years ago when half 

the Members of Congress weren’t here, were not in Congress. 

57 

Why has it taken so long for HRSA to do this and when does 

HRSA plan to begin sharing this information with these covered 

entities? 

Ms. ESPINOSA. I think, as I mentioned, we are working on the 

pricing system which will be operational later this year. The issue 

of the gap in time between the authority and implementing it relates to funding. It was the funding that the Congress provided in 

2014 that allowed us to move forward on this particular system. 

The 340B Program historically, you know, originally did not receive an appropriation. Then it received an appropriation and 

HRSA provided additional funds through some of its program funding. But until the Congress provided that increase, we did not have 

the resources to implement. 

Mr. LONG. OK. Does HRSA believe it would be useful to have 

similar authority to share 340B ceiling prices with State Medicaid 

agencies and if such authority is provided, how long would it take 

HRSA to begin sharing that information with the States? 

Ms. ESPINOSA. That would require a legislative change. So we 

currently do not have authority to share that information. 

Mr. LONG. OK. Sticking with you, Ms. Espinosa, with respect to 

the comprehensive guidance which is expected later this year, how 

does HRSA intend to ensure adoption of the policies by the covered 

entity? 

Ms. ESPINOSA. We would continue to implement our current 

practices, which have multiple aspects to them. First, entities have 

to register before they can participate, so this guidance would provide more specificity as far as those requirements. 

And then there is annual recertification, and that is kind of a 

regular process, regular time that we have to ensure compliance. 

Entities at that time also attest they are complying. And then finally, we have the audit process that we use to go in, as has been 

discussed, for the targeted and the risk-based audits. 

Mr. LONG. What can we as Members of Congress do to help 

HRSA promote the integrity of the 340B Program? 

Ms. ESPINOSA. I think Congress has already been quite supportive of HRSA’s activities. As I mentioned, the additional resources that we got beginning in 2014 were a real boost to our program integrity efforts. 

The President’s budget for fiscal year 2016 also requests additional funding for 340B to continue to modernize our oversight 

practices as well as to enhance and expand them. 

Mr. LONG. OK. Thank you. 

And, Ms. Draper, somewhat recently a study published in Health 

Affairs suggests that generic dispensing rates are lower for 340B 

prescriptions than for all prescriptions overall, possibly leading to 

greater spending under Medicare Part D and Medicaid. 

Is that an issue that GAO has looked into in any detail? 

Ms. DRAPER. We have not looked at that, but I am aware of that 

study that was published in 2012. And there were a couple factors 

that the authors described as potentially leading to the lower dispensing rates for generics. One was related to not having generic 

equivalents for HIV/AIDS and antiviral, which is a population that 

is served by the 340B Program. 

58 

Another factor that they talked about was that the underlying 

comorbidities and complexities of the 340B patients may not compare to the patients at large, so they may require more—so generic 

drugs may not be appropriate. So those were the two factors that 

the authors discussed in that study. 

Mr. LONG. OK. OK. I think everyone realizes how important this 

is to a lot of entities in our congressional districts. And this is a 

very important hearing. I thank you all for being here today and 

for your testimony. 

With that, Mr. Chairman, I yield back. 

Mr. PITTS. The Chair thanks the gentleman, and now recognize 

the gentleman from North Carolina, Mr. Butterfield, 5 minutes for 

questions. 

Mr. BUTTERFIELD. Let me thank you, Mr. Chairman, for holding 

this important hearing on the 340B Program. 

And I thank the witnesses for your testimony today. 

As my colleague, Ms. Castor, said a few moments ago and Mr. 

Long from Missouri just reiterated it a moment ago, this is a big 

deal back at home. 340B is critical to the communities that I represent in eastern North Carolina and it its importance cannot be 

overstated. 

North Carolina’s first district has one of the highest poverty 

rates in the country and prior to the Affordable Care Act, many of 

my constituents were uninsured or under-insured. Even now many 

remain uninsured because the Governor and the General Assembly 

have been unwilling to expand the Medicaid Program. 

For many North Carolinians, the only way to access the care 

they need is through 340B. This bipartisan program helps bring 

providers together with pharma to ensure our most vulnerable populations do not go without necessary medicine. 

The integrity of the program is very important. To that end, I 

ask that we proceed with caution to avoid disruption to the patient 

populations that heavily depend on hospitals for their healthcare 

needs. 

I, too, would like to go to you, Ms. Espinosa. I would like to discuss the purpose of the 340B Program to highlight how important 

it is to communities like the one that I represent. 

Can you describe the type of populations who benefit most, the 

very most, from the 340B Program? 

Ms. ESPINOSA. Yes, sir. As has been discussed, many of the 340B 

entities are the ones that are essential to providing the safety net 

for individuals who have limited access to healthcare or are low income or have other chronic conditions that may limit their access 

to healthcare. 

So as we have discussed, the Health Center Program is one example that serves anybody who walks through their doors, basically, regardless of insurance status or income. And so for those 

programs, the 340B savings allow them to continue operations and 

to continue to serve those individuals. 

Mr. BUTTERFIELD. Well, it is obvious to me that the amount of 

covered entities participating in the 340B Program has actually exploded. It has grown exponentially. 

What do you attribute that growth to? 

59 

Ms. ESPINOSA. Well, there are a couple of factors. One is, just in 

general, there has been kind of a decentralization of health care 

with care being provided in more sites. And then there is also that 

we, in the 340B Program, have beginning in 2012 changed the way 

that we were accounting for eligible entities. And so we started 

counting not only the organization but also all of its sites, and that 

was done to also bolster our oversight effort so that we knew all 

the sites that were using 340B. 

So that is somewhat of a technical aspect, but it does make the 

numbers go up. But I should note since there have been several 

comments about the growth in 340B that over the last several 

years, the 340B sales have remained at about 2 percent of overall 

pharmaceutical sales. So while the number of entities has increased, the sales, the 340B as a proportion of the pharmaceutical 

sales has stayed about 2 percent. 

Mr. BUTTERFIELD. OK. Your testimony indicates that the $6 million in additional funding for HRSA has helped implement additional program oversight. Specifically, the additional funding 

helped increase HRSA’s ability to improve compliance by hiring additional investigators and increasing your administration’s capability to review participants. 

Can you explain the relationship between the additional money 

and HRSA’s ability to provide greater oversight? 

Ms. ESPINOSA. Sure. I think I am going to ask Commander 

Pedley, who is accompanying me, just to describe some of the specific things that we have done with that additional funding. 

Mr. BUTTERFIELD. Yes. 

Ms. PEDLEY. Sure. There are a few aspects that we have been 

able to utilize with the additional funding. One is around IT systems, specifically the pricing system that we have been talking 

about. We are now able to operationalize that system to make ceiling prices available to the covered entities the end of this year. 

We are also able to implement a system that we are able to internally track compliance across the board. Right now there are a 

lot of different manual systems that we can now combine and use 

the system as early warning signs to help trigger any issues that 

may be occurring. 

And another major area again is around issuing the proposed 

guidance and the regulations that we spoke to in addition to being 

able to really double the number of audits in this fiscal year to 200 

as we were able to hire more auditors in the field to conduct these 

audits to really pay more attention to the compliance efforts. 

Mr. BUTTERFIELD. All right. Thank you very much, Mr. Chairman. I yield back. 

Mr. PITTS. The Chair thanks the gentleman, and now recognizes 

the gentlelady from North Carolina, Mrs. Ellmers, 5 minutes for 

questions. 

Mrs. ELLMERS. Thank you, Mr. Chairman. 

And, again, thank you to the panel for being here today. 

Ms. Espinosa, I am going to start with you on HRSA. Some private nonprofit hospitals enter the program through their DSH percentage, yet provide very modest amounts of charity care. In fact, 

1 recent report found that the level of charity care provided by 

60 

DSH hospitals enrolled in the 340B Program is lower than the national average of all hospitals. 

Does HRSA collect the information from hospitals about how 

they use the program’s dollars and how they support the poor and 

indigent patients in a manner that reconciles the 340B Program’s 

intent to serve this as a safety-net program? 

Ms. ESPINOSA. The statute for the 340B Program does not impose 

any requirements on how savings are used by covered entities and 

as such, HRSA has not systematically collected that information 

since it doesn’t tie to a statute. 

Mrs. ELLMERS. Would HRSA support requirements for additional 

transparency for those DSH hospitals with the use of the 340B? 

Ms. ESPINOSA. I think we would need to see those requirements. 

And I can’t speak hypothetically, but certainly we would support 

greater clarity to hospital eligibility. And that is one of the items 

that we are including in our omnibus guidance that we will release 

later this year. 

Mrs. ELLMERS. Thank you. 

Ms. Draper, your 2011 report had a section that focused on covered entities reporting that they use the program and the revenue 

generated to support or expand access to services. However, some 

reports suggest that for two-thirds of the 340B hospitals, charity 

care as a percentage of patient cost is less than the national hospital average of 3.3 percent. 

Other than self-reporting data, is there objective data on how 

hospitals are using the 340B Program or savings in the program, 

I guess I should say? 

Ms. DRAPER. Yes. There is no program requirement for hospitals 

to report how they are using the savings. For some of the grantees, 

the community health centers, they have to use it in accordance 

with their grant program. 

In our report in 2011, we did interview entities about how they 

were using savings and entities that we talked to were using it 

consistent with their particular missions, so—— 

Mrs. ELLMERS. With their particular mission statement? 

Ms. DRAPER. Right. And they were using it for things like to add 

additional sites, provide patient education, help pay for patient’s 

co-pays or help them get the drugs that they needed, so things like 

that. 

Mrs. ELLMERS. Uh-huh. OK. I am just keeping an eye on time. 

Ms. Maxwell, the agency has certified the results of 178 audits 

since fiscal year 2012. Out of the total of 295 audits conducted with 

more than 11,000 entities participating in the program, do you 

think that the current level of audits are appropriate or given the 

vulnerabilities that have been identified, should the agency be 

more for leaning in its audit work? 

Ms. MAXWELL. I think the fact that HRSA now conducts audits 

of covered entities is a significant strengthening of their oversight. 

I am encouraged to see HRSA take that step and to hear they are 

going to be auditing manufacturers as well. 

As to the correct number of audits, without more information 

about how HRSA actually targets those audits, I couldn’t really say 

how many audits would be sufficient to provide coverage. 

61 

I would say 1 area in which our work speaks to that would be 

helpful for their audit program and could really strengthen their 

audit program is that they strengthen the clarity of the guidance. 

Mrs. ELLMERS. The clarity of the guidance? 

Ms. MAXWELL. What we found with respect to the contract pharmacy setting is the guidance was not clear enough to make determinations about whether or not entities were, in fact, in compliance or out of compliance. 

Mrs. ELLMERS. Ms. Espinosa, I have one more question for you. 

There again, getting back to the issue of transparency and how the 

savings are used, isn’t it true that under current guidelines some 

insured patients may receive lower cost drugs from a covered entity 

participating in the program while other uninsured patients may 

not receive that same discount from other covered entities in the 

program? 

So I guess my question is, there just seems to be too much—it 

is too muddy as to how an uninsured patient might end up being 

charged the full cost of a drug. Can you just give us a little bit of 

information on that? There again, I get back to the fact that, for 

the DSH hospitals or the 340B hospitals that are getting a 20 to 

50 percent discount for the commercial price, how can an uninsured patient be charged that full price being part of that program? 

Ms. ESPINOSA. Because the statute does not include any requirements for how savings are used, we have not imposed any requirements or stipulated for covered entities. We don’t have the statutory authority to do that. What they do now is based on their own 

business decisions and their own needs. 

Mrs. ELLMERS. Uh-huh. Which, there again, in my 9 seconds, I 

will just say that—or, I am sorry. I take it back. I have gone over 

time. And, there again, if this is going to be a safety net for those 

who are the most vulnerable, we have got to ensure transparency 

on this issue. 

Thank you again to the panel. 

Mr. PITTS. The gentlelady yields back. 

The Chair recognizes the gentlemen from Indiana, Dr. Bucshon, 

5 minutes for questions. 

Mr. BUCSHON. Thank you, Mr. Chairman. 

This is to Ms. Draper and this has kind of partially been answered, but currently about one-third of all hospitals qualify for 

340B. GAO’s 2011 report noted that HRSA did not have specific eligibility criteria for nonpublic DSH hospitals. Instead noting that 

hospitals with contracts provide a small amount of care to low-income individuals not eligible for Medicaid or Medicare could claim 

340B discounts which may not be what the agency intended. 

After the report was issued, HRSA did release some eligibility 

criteria for nonpublic hospitals. However, these criteria potentially 

allow hospitals with very limited contracts for specific populations 

to qualify hospitals for 340B for all of their patients. 

Do you think HRSA’s guidance addresses your concerns? 

Ms. DRAPER. First of all, it is now up to 40 percent of DSH hospitals that are eligible for 340B. 

Mr. BUCSHON. There you go. 

Ms. DRAPER. That is the most recent data. Basically the guidance 

that was issued was a restatement of what already existed, so 

62 

there was really nothing new related to when we had done our 

2011 work. 

Mr. BUCSHON. OK. So you can still—— 

Ms. DRAPER. It was 2013 they issued a policy that restated what 

their existing policy was from our read of that issuance. 

Mr. BUCSHON. OK. So I am assuming you think additional steps 

are needed for the program’s eligibility criteria for hospitals to be 

consistent with the program’s mission to support entities that care 

for uninsured and vulnerable patients? 

Ms. DRAPER. Yes. We believe the guidance needs to be clear as 

to who participates. 

Mr. BUCSHON. OK. Ms. Espinosa, I understand that when 340B 

hospitals acquire physician practices, the drugs dispensed to those 

practices’ patients often are converted to 340B. 

When this happens, do the acquired practices take on any new 

statutory or regulatory obligations to provide access to their practices for indigent patients? 

Ms. ESPINOSA. Our policy is that when an outpatient facility is 

reported as part of the cost report, then it is part of the same entity and can use 340B, as far as the first part of your question. 

On the second, because there is no statutory requirement for how 

savings are used, there is no requirement that the savings be used 

for any particular types of patients. 

Mr. BUCSHON. OK. And do you think hospitals should make a 

profit off the program? What I mean is, do you think that we 

should have a prescriptive way that people that participate need to 

show us with oversight how they are using the savings versus just 

including it as part of their larger budget for their entire facility? 

Does that make sense? 

Ms. ESPINOSA. Well, sir, since we implement the statute and the 

specificity that is in the statute, right now the statute does not 

have those requirements. And so it is challenging for us to go beyond that. Our guidances can interpret statute, but to go and provide greater specificity is challenging without—— 

Mr. BUCSHON. Because my understanding is hearing through 

kind of the grapevine, so to speak, is that there are some facilities 

out there who are budgeting for profit from the 340B Program into 

their regular budget. 

And so I think we have all pointed out that we probably need to 

address that because that is not the intent of the program. The intent of the program would be to use savings to help further the 

education or healthcare of the serviced population of people, not 

have it a line item in a budget as here is our profit from 340B next 

year and going into the general budget. Whether that is true or 

not, I don’t know, but that is what I have heard. 

So I just want to at the end with my remaining time state this 

is a critical program for many institutions in my district as well as 

across the country to serve the individuals that it serves. But clearly if we want to maintain a program that seems to be exploding 

in size and make sure that these patients continue to have access 

to this type of program, more aggressive oversight and probably 

congressional action may very well be needed to maintain that 

long-term program integrity. 

Thank you. I yield back. 

63 

Mr. PITTS. The Chair thanks the gentleman, and now recognize 

the gentleman from New York, Mr. Collins, 5 minutes for questions. 

Mr. COLLINS. Thank you, Mr. Chairman. 

A lot of the questions I was going to ask have been asked. That 

is the problem of being last. But I think there is a lot of misunderstanding here when it comes to 340B, so maybe just as I am going 

last some clarification. 

Who sets, and this would be for Ms. Espinosa, who sets the ceiling price? Is that a fixed price for a particular drug? Who sets that 

price? 

Ms. ESPINOSA. I am going to ask Commander Pedley to describe 

the ceiling price. 

Ms. PEDLEY. Sure. It is defined in the law for how it works. It 

is based on components that manufacturers report to CMS, average 

manufacturer price and unit rebate amount. They are subtracted 

from each other to get the ceiling price. So it is actually defined in 

the law. 

Mr. COLLINS. So once a manufacturer has a ceiling price, is that 

price then the 1 price charged throughout the entire United States 

to every covered entity? 

Ms. PEDLEY. Not necessarily. They can then go below that price 

to certain types of entities, but stay at the ceiling price for other 

entities. They just can’t charge anyone above, but they don’t need 

to charge everyone the same exact price. 

Mr. COLLINS. What would be a reason why they would give someone a discount and someone else not below the ceiling price? 

Ms. PEDLEY. It could depend on market, the type of entity that 

they serve, the volume of drugs that they purchase, for example. 

Mr. COLLINS. That is interesting. So when we talk about transparency and the need to publish the ceiling price, have we found 

cases where they would charge more than the ceiling price? 

Ms. PEDLEY. On occasion, we do get reports from covered entities 

that they believe they may have been overcharged. We investigate 

that and research it with the manufacturer. Those are often resolved between the manufacturer and the entity, usually an error 

in some type of pricing calculation, but we do follow-up and ensure 

that they do not overcharge. And if they do, they are required to 

refund the covered entity. 

Mr. COLLINS. If they have a ceiling price, how often can they 

modify that, monthly, quarterly, yearly? 

Ms. PEDLEY. It is changed quarterly. 

Mr. COLLINS. It is? OK. 

Ms. PEDLEY. Based on the pricing submitted to CMS. 

Mr. COLLINS. And that is where transparency would at least be 

helpful, I think, to everyone. I think this is 1 of the common-sense 

things we could do. 

Now, we have talked about clarifying a patient definition. So another point which I don’t think is fully understood by a lot of our 

Members, myself included. If an entity, a DSH hospital is a covered 

entity and they are allowed to get 340B pricing, does it also link 

to a particular patient that meets the definition or is it for every 

patient in the hospital every time they use that particular drug, 

they get 340B pricing? 

64 

Ms. ESPINOSA. The 340B pricing would only be available to those 

patients that meet the criteria of our patient definition. So that 

would be outpatient services and other aspects of the definition 

that we currently have. 

Mr. COLLINS. Which is what I thought, but I think through some 

of the questions today, on occasion, it sounded like every patient 

in the hospital got the discount pricing. 

Ms. ESPINOSA. No. 

Mr. COLLINS. And that is why it is important to define who is 

a covered patient. 

Now, the ceiling price versus a Medicaid price for a particular 

drug, are they different? Are they the same? Is one higher? Is one 

lower? 

Ms. PEDLEY. We have some information that usually the 340B 

price is slightly lower than the Medicaid price, but it depends on 

the type of drug it is. For example, if it is brand or generic, it can 

vary. 

Mr. COLLINS. So tell me how does a 340B drug end up with a 

negative price because I have heard there are occasions it is a negative number and then they have the penny pricing that said, all 

right, we are not going to make the manufacturer give you the 

drug and give you cash on top of that. They should at least get a 

penny for that. So in the common-sense world, I guess could you 

help me understand? 

Ms. ESPINOSA. Go ahead. 

Ms. PEDLEY. So in the calculation, as I mentioned, the average 

manufacturer price minus the unit rebate amount, that can calculate out to a zero. Obviously we do not expect manufacturers to 

charge a zero ceiling price, so we have a policy in place that they 

charge a penny per unit when that is the case. 

Mr. COLLINS. I am sure they appreciate the penny, but it was actually a negative number. 

Ms. PEDLEY. It can actually, I believe. Since the Affordable Care 

Act has passed, because of how the calculation works, it can no 

longer be negative. It can just be a zero. 

Mr. COLLINS. OK. So now, when does a drug become eligible for 

340B pricing and in particular, I have only got 38 seconds, but the 

new Hep C drug that we have all talked about that is a cure for 

Hep C, it is extraordinarily expensive, but a single treatment regime cures that disease? Is that one on the 340B Program now? 

Ms. PEDLEY. So the drugs that are covered, the manufacturer 

that participates in Medicaid signs an agreement with HRSA, then 

all of their covered outpatient drugs have to be priced at the 340B 

ceiling price. 

And then on the entity level, as long as the drug is used on an 

outpatient basis and that patient meets the patient definition, the 

drug can be covered. So in this instance, if the drug is specifically 

used on an outpatient basis, the manufacturer has an agreement 

with HRSA, it would be 340B eligible. 

Mr. COLLINS. All right. Well, thank you for that. It was very educational. 

Mr. Chairman, thank you, and I yield back. 

Mr. PITTS. The Chair thanks the gentleman, and now recognize 

the gentleman from Florida, Mr. Bilirakis, 5 minutes for questions. 

65 

Mr. BILIRAKIS. Thank you. I appreciate it, Mr. Chairman. 

Administrator Espinosa, I appreciate the steps HRSA has taken 

to step up its compliance efforts for manufacturers and covered entities. 

In the interest of having a level playing field and increasing accountability, do you think it would be prudent to subject manufacturers to similar compliance and auditing standards as covered entities have? Now, if they are covered and they are subjected to this 

compliance, that is fine, but I am asking that question. Do you feel 

that it should be a level playing field? 

Ms. ESPINOSA. We have efforts in place for manufacturer compliance as well. For manufacturers, though, their requirements under 

the law are much narrower. Their requirements are just that they 

offer the ceiling price. 

So the establishment of the pricing database will help to ensure 

that that is happening to a greater extent than our ability to ensure today. And then also we have authority to audit manufacturers and we are developing protocols to audit manufacturers as well. 

Mr. BILIRAKIS. OK. Thank you. 

Administrator Espinosa, one thing many of us like about the 

340B Program is that it doesn’t cost taxpayers dollars. Of course, 

we love the program because it helps out our constituents. So I am 

hopeful you can shed some light on the financial impact of the 

340B Program. 

In GAO’s testimony, it was noted that according to the most recent estimate available from HRSA, covered entity spending on 

340B drug purchases was estimated to be approximately $7.5 billion in 2013, yet HRSA’s fiscal year 2015 budget justification estimated that the annual savings attributable to the program in 2013 

was $3.8 billion. 

If I am reading that right, it would be significant amount of savings, roughly 50 percent of the total covered entities’ drug expenditure in the year. 

Can you explain how HRSA calculated the savings attributable 

to the program? 

Ms. ESPINOSA. I am going to defer to Commander Pedley to answer that question. 

Ms. PEDLEY. So how we do that calculation is, on average, the 

340B pricing is about 25 to 50 percent lower than what they would 

have otherwise paid. So we do base that number and their savings 

on the highest, which would be $3.8 billion in savings. 

Mr. BILIRAKIS. OK. Thank you. 

Again for Administrator Espinosa, I understand that HRSA received about $6 million in the Consolidated Appropriations Act of 

the fiscal year 2014 and you are using those funds for IT systems, 

new auditors, and staff. 

Can you walk us through when you think the capacity developed 

with those funds will be fully operational and deployed? 

Ms. ESPINOSA. We have various systems that we are rolling out. 

We have mentioned the system that we use, the 340B system that 

we use for compliance monitoring. Aspects of that system will be 

operational this year, but we are continuing to enhance its 

functionality. 

66 

We find that the system is also helpful in reducing the burden 

of reporting for covered entities and manufacturers. So it is something that helps us kind of tie together our oversight activities but 

also be more efficient in the way that they provide information to 

us. 

We also, with those funds, are establishing the protocols for the 

manufacturer audits which we will begin this year and that will 

continue. And then we have the pricing system which will be operational this year with expanded functionality into next year. 

So that investment has laid the groundwork for many aspects of 

our oversight activities, but we are going to continue to improve 

and enhance them as we implement them and identify other opportunities for increased oversight. 

Mr. BILIRAKIS. OK. Thank you. 

This is for the panel. I walked in a little late because I had another event that I had to go to, but name some of the entities that 

are eligible for the 340B Program. I heard the federally qualified 

community health centers, the DSH hospitals, what have you. Can 

you name some other nonprofit clinics, for example? 

Ms. PEDLEY. So there is about 22 different types of entities, as 

you mentioned, federally qualified health centers, hemophilia treatment centers, federally qualified health centers, as I mentioned, 

HIV/AIDS clinics, Indian Health Service clinics, disproportionate 

share hospitals, critical access hospitals, rural referral centers, a 

lot of the rural hospitals. 

Mr. BILIRAKIS. OK. Thank you very much. 

I yield back, Mr. Chairman. Thank you. 

Mr. PITTS. The Chair thanks the gentleman. 

That concludes the questions of the Members present. We will 

have follow-up questions that we will provide to you in writing. We 

ask that you please respond promptly. 

I have a UC request from the ranking member. 

Mr. GREEN. Mr. Chairman, I ask unanimous consent to place in 

the record a letter of support that Congresswoman Capps has from 

the National Association of Community Health Centers in support 

of the program and also from Congressman Matsui from the Ryan 

White Clinics for 340B access. And I ask unanimous consent to 

place it in the record. 

Mr. PITTS. Without objection, so ordered. 

[The information appears at the conclusion of the hearing.] 

Mr. PITTS. I remind Members they have 10 business days to submit questions for the record. That means Members should submit 

their questions by the close of business on Tuesday, April 7th. 

Very interesting, informative hearing. It looks like Congress has 

some follow-up responsibilities. Thank you very much for your attendance today. 

And without objection, the subcommittee is adjourned. 

[Whereupon, at 11:37 a.m., the subcommittee was adjourned.] 

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