January 31, 2025

South Dakota State Capitol
Senate Committee on Health and Human Services
Capitol Room 412
500 East Capitol Avenue
Pierre, South Dakota 57501

Dear Senator,

The Senate Committee on Health and Human Services will soon hold a hearing on SB 154.  On behalf of the members and supporters of the Council for Citizens Against Government Waste (CCAGW) in South Dakota, I urge you to oppose SB 154, which will change how the federal 340B Drug Pricing Program operates in South Dakota.  Congress created 340B in 1992 to fix a problem it created in 1990 when it implemented price controls in Medicaid.  It requires pharmaceutical companies that participate in Medicaid to give discounts of between 20-50 percent to certain federally funded facilities and disproportionate share hospitals.  But 340B does not define “patient” or require covered entities to pass on drug savings to patients.

A January 2018 House Energy and Commerce Committee report on 340B identified insufficient oversight, unreliable data, inadequate reporting requirements, unclear statutory intent, and no definition of an eligible patient.  A November 2021 Xcenda study, “340B and Health Equity: A Missed Opportunity in Medically Underserved Areas,” showed how 340B boosts hospitals’ coffers and their contract pharmacies’ profits located in areas that do not serve low-income people.  An IQVIA study, “The 340B Drug Discount Program Exceeds $100B in 2022,” found ongoing misuse of the funds by hospitals and contract pharmacies.

On November 25, 2024, the Minnesota Department of Health (DOH) issued the first report on how the program works in a state.  The hospitals received at least $630 million in 340B revenue in 2023, which may only be half of the total.  The largest hospitals, or 13 percent of participating hospitals, received more than $500 million, or 80 percent of the revenue.  The highest profit was $129 million at M Health Fairview University of Minnesota Medical Centers while federal safety-net grantee clinics generated the least revenue. 

The Minnesota DOH report provides more transparency and exposes the abuses of the program.  It should be a wake-up call not only for Congress to move forward with 340B reform as CCAGW has recommended, including defining a patient as indigent, not eligible for Medicaid, and lacking insurance, as well as verification of patient eligibility by covered entities, but also for states like South Dakota to forgo changes to the program at least until they analyze how it is impacting patients and taxpayers within their borders. 

 Sincerely,
Tom Schatz
President, CCAGW