Remarks of Thomas A. Schatz

President

Council for Citizens Against Government Waste

340B Drug Pricing Program Briefing

September 23, 2024

The 340B program was created in 1992 after the Medicaid Drug Rebate Program, which was established in 1990, set price controls on the cost of drugs that led to higher rather than lower prices.  340B requires manufacturers participating in Medicaid to sell drugs at a discount of between 20 to 50 percent to “covered entities,” including federally funded facilities like community health centers, black lung clinics, tuberculosis clinics, and hemophilia treatment centers.  The program includes disproportionate share hospitals (DSH), which receive supplemental federal funds related to the number of low-income Medicare and Medicaid patients and uninsured indigent patients served by the facility.

Despite the intentions of the program to help patients, Congress did not provide a clear definition of who should benefit from 340B.  The vague law and subsequently unclear regulations have allowed a broad interpretation of “patient,” permitted too many organizations to qualify for the program, and provided little control over how the drug savings can be spent.  The problems were exacerbated by the Affordable Care Act, which allowed 340B hospitals to sign agreements with an unlimited number of contract pharmacies, resulting in an exponential increase in those pharmacies in the program.

The issues with 340B subsequently caught the attention of both the Government Accountability Office and the Department of Health and Human Services Office of Inspector General.  A June 2015 GAO report cited both a September 2011 GAO report and a February 2014 HHS OIG report that found “many troubling issues within the program, such as 45 percent of covered entities had profited from the 340B program, that the savings from the discounted drugs were often not passed along to low-income patients, that drugs were being diverted to people that were not patients of the covered entities” which is not permitted under the law.

A January 10, 2018, House Energy and Commerce Committee report found that while Health Resources and Services Administration prohibits diversion and resale of 340B drugs to ineligible patients, “a large percentage of HRSA’s audited entities diverted drugs to ineligible patients in FY 2012 through FY 2016.” 

After that report was issued, nothing was done to reform the 340B program until May 23, 2023, when the committee passed H.R. 3290 to improve transparency and oversight and held a hearing on the program on June 4, 2024.  In the Senate, the Gang of Six released a discussion draft on February 2, 2024, but legislation has not yet been introduced. 

There has been so much abuse of the program that the Council for Citizens Against Government Waste has referred to it as an ATM for nonprofit hospitals and pharmacies.

In addition to the proponents of 340B reform here today, there are other groups that support making changes to improve the program.  An October 28, 2020, coalition letter led by CCAGW signed by 18 organizations to then-Senate Health, Education, Labor, and Pensions Committee Chairm0an Lamar Alexander (R-Tenn.) and House Education and Labor Committee Ranking Member Greg Walden (R-Ore.) cited findings from the April 2016 Community Oncology Alliance report on the cost drivers of cancer care.  The letter summarized the report’s findings by stating, “When a 340B hospital purchases a physician’s office, it can administer their heavily discounted drugs to its newly acquired patients that have insurance, charging the insurers the full reimbursable price and pocketing the difference.”

A November 2021 Xcenda study on 340B and health equity for medically underserved areas showed how the program is not being implemented as intended to help low-income and vulnerable individuals gain access to low-cost prescription drugs.  Instead, it is boosting hospitals’ coffers and their contract pharmacies’ profits which are largely located in areas that do not serve low-income people. 

An April 14, 2023, report from the healthcare data analytics firm IQVIA found that 340B exceeded $100 billion in 2022 after being less than $10 billion in 2014.  The report noted how the misuse of the funds by hospitals and contract pharmacies is ongoing, and patients are still not getting the benefits Congress intended them to receive.

To improve and reform the 340B drug discount program, Congress should clearly define a patient as an uninsured, low-income individual who does not qualify for Medicare or Medicaid.  This would tighten the loose interpretation of eligibility that has gone on for far too long and help to ensure that the program operates closer to the way it was originally intended.  Improving reporting and transparency requirements will also help to ensure that the patients benefit from the program as intended.

There have been sufficient reports by Congress, the media, and outside organizations about the cost, failure, and abuse of the 340B program.  All that remains is the will to get the job done, which will both save the taxpayers money and give low-income patients the discounts on drugs that they have long deserved.