Statement for the Record- Perspectives on the 340B Drug Discount Program Hearing | Council For Citizens Against Government Waste

Statement for the Record- Perspectives on the 340B Drug Discount Program Hearing



Statement for the Record before the Senate Health, Education, Labor, and Pensions Committee:
“Perspectives on the 340B Drug Discount Program Hearing”

March 15, 2018

Thomas Schatz
Council for Citizens Against Government Waste
Washington, D.C.

Pete Sepp
National Taxpayers Union
Washington, D.C.

On behalf of the more than 1 million members and supporters of the Council for Citizens Against Government Waste (CCAGW) and the National Taxpayers Union (NTU), we are pleased to see the Senate Health, Education, Labor, and Pensions Committee has scheduled a hearing on the 340B drug discount program for March 15, 2018.

The 340B program, created in 1992, is overseen by the Health Resources and Services Administration (HRSA).  It requires pharmaceutical manufacturers that participate in Medicaid to provide heavily discounted drugs to certain healthcare providers, called “covered entities.”  In theory, the entity, or pharmacy with which it contracts with, is supposed to pass along the savings to its uninsured, low-income patients, as Congress intended to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

Due to vague language in the law and unclear regulations, like a well-defined description of what constitutes a 340B patient, this is not happening.  CCAGW and NTU believe there is evidence that many hospitals are abusing the 340B program by purchasing the deeply discounted drugs, providing them to patients with health insurance, and boosting their profits by pocketing the substantial difference when reimbursed by the patients’ co-pays and insurance.  There is also evidence that this practice adversely impacts Medicare.

The Patient Protection and Affordable Care Act (ACA) substantially increased the number of hospitals that can utilize the program, from 7,806 in 2013 to 21,554 in 2017, a 176 percent increase.[1]  HRSA expanded the number of contract pharmacies that can participate, which are not mentioned in the 340B statute, from 1,256 in 2010 to 18,705 in 2017, a 1,389 percent increase.[2]  As a result of this exponential growth, from $7.2 billion in total drug sales in 2013 to $16.2 billion in 2016[3], a 125 percent increase, the discount program has drifted far from its original mission of helping uninsured, indigent people get access to prescription drugs.  To make matters worse, a cottage industry of 340B consultants and software vendors has been created just to help hospitals and pharmacies maximize their profits under the program.

Ultimately, consumers and taxpayers pay for the diversion and waste of 340B funds through higher drug prices, taxes, and premiums. 

The Department of Health and Human Services Office of Inspector General (HHS-OIG), as well as the Government Accountability Office (GAO), have uncovered many problems with the program, including a lack of oversight by the HRSA, unclear regulations, and abuses of the program’s benefits. 

For example, an HHS-OIG February 4, 2014 report found that some covered entities’ contract pharmacies do not offer the discounted 340B price to their uninsured patients.  Contract pharmacies can also create opportunities to dispense 340B-purchased drugs to Medicaid beneficiaries and receive a duplicate discount or divert drugs to ineligible 340B patients, both of which are statutorily prohibited.[4]

A June 2015 GAO report found that Medicare Part B drug spending, including oncology drugs, was substantially higher at 340B disproportionate share hospitals (DSH) than at non-340B hospitals.  The GAO stated that the higher spending indicates that on average Medicare beneficiaries at 340B DSH hospitals were either prescribed more drugs or more expensive drugs than beneficiaries at the other hospitals.[5]

Hospitals are acquiring numerous independent physician practices, particularly in the oncology area, and are turning them into out-patient departments where a 340B discount can be obtained.  When a 340B hospital purchases an oncology physician office, it can administer the heavily discounted drugs to its newly acquired patients, accept their co-pays, charge insurers the full reimbursable price, and pocket the difference.

A December 2017, Berkeley Research Group report, “The Oncology Drug Marketplace: Trends in Discounting and Site of Care,” found that 340B hospitals have a clear financial incentive to expand oncology services.  In 2008, 340B hospitals accounted for 38 percent of oncology drug reimbursements in Medicare Part B; in 2016, 340B hospitals accounted for 67 percent.[6]

Clearly, the 340B program needs to be reformed and be returned to its original mission of helping the poor and uninsured.  CCAGW and NTU believe that a clear definition of a 340B patient needs to be codified into law, and must include that the patient is uninsured and has a low income.

Non-hospital entities, such as federally-qualified health centers, Ryan White HIV/AIDs program grantees, and specialized clinics must operate within the rules of their federal grants and programs, so there is more of a guarantee they will utilize their 340B drug savings required by the law.  On the other hand, 340B hospitals have no such restriction and can utilize the funds for anything they choose, such as constructing new buildings and other overhead and investment activities.  Congress should institute an audit or tracking system for how 340B hospitals utilize their pharmaceutical savings and make sure it is in line with the law’s intent.

CCAGW and NTU also believe that utilizing a DSH hospital designation as being eligible for the 340B program should be re-evaluated.  A DSH hospital is determined by CMS primarily under a process that calculates the number of days Medicare and Medicaid patients have been in the hospital.  But Medicare and Medicaid are government health insurance programs, which provide drug coverage for their beneficiaries.  This is contrary to the intent of the 340B program, which is to help low income patients without insurance.  How much uncompensated care a hospital provides to uninsured, indigent patients and the financial condition of the hospital may be better eligibility measures for the 340B program.

CCAGW and NTU are pleased that the committee is interested in the 340B drug discount program and look forward to your developing solutions on how to return it to Congress’s original intent to “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”


[1] GAO, “Drug Discount Program: Update on Agency Efforts to Improve 340B Program Oversight,” GAO-17-749T, p. 4.

[2] Ibid., p. 8.

[3] Adam Fein, Ph.D., Drug Channels Blog, May 18, 2017,


[4] HHS-OIG, “Memorandum Report: Contract Pharmacy Arrangements in the 340B program,” OEI-05-13-00431, February 4, 2014, pp. 1-2.

[5] Government Accountability Office, “Medicare Part B Drugs: Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals,” June 2015, GAO-15-442, p. 20.

[6] Aaron Vandervelde, Eleanor Blalock, Berkeley Research Group, “The Oncology Drug Marketplace: Trends in Discounting and Site of Care,” December 2017, p. 1.