Testimony before the Special Committee on Pharmaceutical Studies

Kansas Legislature

September 26, 2025

Chair Gossage, Vice Chair Sutton, and members of the Committee,

Thank you for the opportunity to discuss the 340B Drug Discount Program and how it impacts Kansans.  My name is Tom Schatz, and I am the President of the Council for Citizens Against Government Waste (CCAGW), a private, nonpartisan, nonprofit organization representing more than one million members and supporters nationwide, including 3,836 members and supporters in Kansas.  Founded in 1984, CCAGW was established to follow up on the work of the President’s Private Sector Survey on Cost Control, also known as the Grace Commission, to eliminate waste, fraud, abuse, mismanagement, and inefficiency in government. 

The 340B program was created in 1992 to help federally funded clinics and hospitals that serve a large uninsured population cover the cost of drugs and provide discounts to patients.  340B requires manufacturers participating in Medicaid to sell drugs at a discount of between 20 to 50 percent to “covered entities,” (CEs) 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 a 340B patient.  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 (ACA), 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.

Since the ACA’s enactment in 2010, issues with 340B have caught the attention of the Government Accountability Office (GAO) and the Department of Health and Human Services Office of Inspector General (HHS OIG).  A June 2015 GAO report cited both a September 2011 GAO report and a February 2014 HHS OIG report that found 45 percent of CEs had profited from the 340B program, the savings from the discounted drugs were often not passed along to low-income patients, and drugs were impermissibly being diverted to people who were not patients of the CEs.

The 340B program is replete with wasteful spending.  A January 2018 House Energy and Commerce Committee report on 340B identified insufficient oversight, unreliable data, and inadequate reporting requirements.  It found that while Health Resources and Services Administration (HRSA) 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.”  A November 2021 Xcenda study, “340B and Health Equity: A Missed Opportunity in Medically Underserved Areas,” showed how 340B boosts hospitals’ coffers and the profits of contract pharmacies located in areas where they do not serve low-income people.  An IQVIA study, “The 340B Drug Discount Program Exceeds $100B in 2022,” also showed ongoing abuse by hospitals and contract pharmacies. 

A June 18, 2025, Ohio Capital Journal article and a September 22, 2022, New York Times investigation revealed that 340B hospitals have been siphoning money from low-income areas to wealthier communities and spending their 340B profits on generous administrator salaries, luxurious amenities, and other projects unrelated to providing drug discounts to patients.  An April 24, 2025 Senate Health, Education, Labor and Pensions (HELP) Committee Majority Staff report on 340B, under Chairman Bill Cassidy (R-La.), identified a litany of abuses by CEs and identified necessary reforms.  A September 21, 2025 Wall Street Journal editorial reiterated 340B program abuses, including how well-financed 340B hospitals are using their discounts to finance their acquisition of competing providers that are not eligible for 340B discounts, which further consolidates the healthcare market and raises costs for insurers and patients.  And a September 10, 2025 Congressional Research Service report called attention to the increased costs caused by state laws that have expanded eligibility for pharmacies to receive 340B discounts and the flurry of litigation that has followed in the wake of those laws. 

Since 340B is a federal program, essential reforms like a patient definition should be enacted by Congress, while the states play a key role in requiring greater transparency and accountability for program expenditures.  For example, a May 8, 2024, North Carolina State Treasurer report found that covered hospitals billed the North Carolina State Health Plan more than 80 percent more for certain cancer drugs compared to non-340B hospitals.  In one example, a drug costing the covered hospital $7,985 was billed to the state for $21,512.  A November 25, 2024, Minnesota Department of Health (DOH) report on 340B CEs, which was the first state-based analysis of its kind, found that hospitals in the state received at least $630 million in 340B revenue in 2023.  But that may only be half of total 340B revenue in the state based on national data for the program.  The report found that the largest hospitals, which equals 13 percent of the participating hospitals, received more than $500 million, or 80 percent of the revenue, with $129 million alone for M Health Fairview University of Minnesota Medical Centers.  Federal safety-net grantee clinics generated the least net 340B revenue, and some showed a loss.  Kansans deserve at least the same level of transparency provided in the North Carolina and Minnesota reports. 

An April 14, 2023, IQVIA report found that forgone rebates on prescriptions subject to 340B pricing increased Kansas commercial employer costs by $69 million and state and local government healthcare plans in the Sunflower State by more than $13.5 million.  Kansas should forgo legislative changes to the 340B program before conducting a thorough investigation of how it impacts patients and taxpayers in the state. 

Again, I appreciate the opportunity to testify before your committee, and instead of moving forward with consideration of 340B legislation in Kansas, I urge you to contact your congressional delegation and ask them to reform 340B.   

Sincerely,
Tom Schatz
President, CCAGW