systematic. he met congressional leaders every week. he chaired the national security council every week. he had his firm on government. he trusted the process. he believed the federal government could work well if it was well led. >> q&a, sunday night at 8:00 eastern on c-span. c-span, where history unfolds daily. in 1979, c-span was created as a public service by america's cable television company. and today we continue to bring you unfiltered coverage of congress, the white house, the supreme court, and public policy events in washington, d.c. and around the country. c-span is brought to you by your cable or satellite provider. now officials from the health and human services department and the government

accountability office testify on a federal drug pricing program called 340b. the program requires drug manufacturers to provide outpatient drugs to qualified health care providers that serve low income patients. this is just over an hour and ten minutes. >> good morning, the senate committee on health education labor and pension. please come to order. last friday president trump and secretary azar announced a blueprint on drug pricing. seemed to me it was sweeping comprehensive, sophisticated, and appeared to be patients and taxpayers first.

the administration is beginning to tell us more about what they have in mind. some are asking in some cases, they're asking for input from the public about some of their objectives. so it may take some time before we know what the specifics of all the proposals are. many of the proposals appear to be in the jurisdiction of other committees, but some of the more important piece wills be in the jurisdiction of this commit -- pieces will be in the jurisdiction of this committee, including over-the-counter drugs, which this committee already has taken some steps on such as legislation we approved last month to make it easier to get over-the-counter drugs to market by modernizing the outdated monogram systems. examining the relationship of the list price to what the consumer will pay. that should be in our jurisdiction. policies to prevent drug manufacturers from gaining our current system. some of these could be done by administrative actions. others will require legislation. we will be working with the

administration on scheduling a hearing and other ways such as round tables or additional briefings with staff and with members of the committee to learn more about their proposals. the administration has already started that process. the president announced a proposal on friday. the secretary had a bipartisan call for senators the same day the department has begun briefing staff. we will continue to make sure that members and staff know as much as we can know about the proposals. but today's hearing is the second in a series of hearings about the 340b program. for several months now, the committee has turned our attention to the high cost of health care. we failed three hearings on the cost of prescription drugs as a part of that. most recently with the national academies. like those hearings, today's hearings are bipartisan, which means senator murray and i agree to it, and the witnesses

are bipartisan. we thank you both for coming. and so i know senators had have a right to talk about everything from health insurance to football within five minutes as they often do. but i hope we can focus on this unusual opportunity to get some independent evaluation of the 340b program from the experts who we have here today. today, i hope we can determine what's the purpose of the program. is it fulfilling the purpose? should there be changes in the law, so the program can fulfill that purpose? senator murray and i will each have an opening statement, and i'll introduce the witnesses. then we will hear from them. senators will each have five minutes to question the witnesses. at our first hearing, we heard from hospitals, drug companies, community health centers, and pharmacies. we learned there is a lack of agreement on the following questions. what is the total amount that americans spend on prescription drugs? what percent of that spending is subject to the 340b

discount? how much do hospitals and clinics save through the 340b discount? and on what do they spend those savings? this lack of agreement on the amount of money and how the money spent makes it hard to properly oversee the program or to know how much the savings, how much of the savings hospitals and clinics will receive from discounted drug prices and are used to reduce the price of drugs and treatments for patients. how much is spent on other activities. very well may be that most are using the savings to benefit low income patients as intended. or it may be that the other activities will meet an important public objective, but it's hard to know until we have more information. today's hearings, they were hearing from the government accountability office, the gao. and the department of health and human services office of the inspector general. they have examined and published a number of oversight reports from the 340b program.

we will have a third hearing, which was suggested by senator cain. we'll have that later this year to hear from the health resources and services administration. and today's hearing, the gao, the department of health and human services office of inspector general are non- partisan federal watchdogs that issue recommendations on how federal programs can run better. in 2011, gao found the first oversight of the program was, "inadequate." saying the oversight is inadequate because it primarily relies on covered entities and manufacturers self-missing. that's participants ensuring their own compliance with program requirements. in 2014 they drafted regulations to find where the patient is. however they were sued in 2014. the courts found a lack of

statutory authority to engage in such rule making. limiting what they could do to oversee the program. the inspector general of the department of health and human services has come to a similar conclusion, concluding the oversight of the program has been inconsistent, and hurts and lacks authorities to oversee it. to improve oversight, the inspector general recommended that they clarify which patients are eligible to receive 340b drugs, how hospitals and clinics can use contract pharmacies to dispense 340b drugs, and clarify other requirements on eligibility. another concern raised by the inspector general is the states will have more information about the price and the discount of drugs in the program to properly reimburse through medicaid. it recommended there be more transparency on the price of 340b drugs to ensure states are

making accurate payments. they're using the 340b program to benefit low income patients or serve another worthy public objective. but i would like to hear more about to have an agreement on the 340b program, so we can make such determinations. senator murray? >> thank you so much, mr. chairman. i'm glad we're able to continue this discussion about the 340b program with witnesses from the government accountability office, and the department of health and human services office of the inspector general. i'm interested to hear more about how this program helps so many hospitals and health centers stretch their resources and serve their communities, and how we can strengthen and preserve it. 340b is critical for safety net providers that care for patients and families with the needs and few resources. the program works by requiring pharmaceutical companies to sell drugs at a lower price to

help providers who take on a larger burden by serving vulnerability populations and low income patients. the congressional intent of the program is to help providers sketch federal resources and provide more comprehensive services. in washington state they're using their 340b savings today just that. olympic medical services uses 340b savings in washington to fund the only service cancer center on the olympic peninsula, allowing patients to access treatment close to home and provide treatment regardless of whether patients are able to pay. without 340b, the center would operate at a loss and would have to cut back that program. in evergreen hilton, monroe, washington, they use 340b savings to fund a program for pregnant women struggling with substance abuse, a primary care center in rural fulton, and discounted care for those who need it. without 340b, evergreen would have operated at a loss and would have to cut programs. on the east side of our state,

the health center uses 340b to serve rural communities in washington, idaho, and montana. 340b savings support level three helps nicu, and an er that oversees 50,000 visitors a year, no cost behavioral health services and financial support for cancer patients. it's clear 340b has helped health care providers that are so essential stretch their resources farther than they could otherwise. but that doesn't mean we can't also have more clarity in the 340b program. we should strengthen the program and have accountability and transparency for everyone in our drug system. we should be confident entities are being used appropriately and pharmaceutical manufacturers are providing 340b discounts fairly. if there is abuse in the system, we should hold those actors accountable.

there have been opportunities to actually provide that accountability. but unfortunately president trump seems entirely interested in the actual oversight program integrity. he has continued to sabotage efforts to ensure drug companies play by these rules. the affordable care act gave the health resources and services administration new authorities to keep the 340b program accountable. after the inspector general for the department of health and human services found many drug companies, they were overcharging. they drafted a rule to make sure companies were given the discounts required by the 340b program. the obama administration finalized that rule, but the trump administration has delayed implementations over and over. the most recent delay came last week, the same week he gave a speech, claiming he was getting tough on drug companies. when he attempted to provide more clarity for the program through the so-called mega guidance. instead of improving that

draft, working with stakeholders to approve that path forward. the trump administration took a giant step back and withdrew that guidance, abandoning the efforts completely. they haven't just backed away from the accountability and clarity for the 340b program, but they have tried to cut it as well. the providers have traditionally been reimbursed by medicare at the same rate as everyone else. this year the trump administration announced they would program and reimburse hospitals at a rate that's lower than all of the other hospitals. president trump can talk and tweet about lowering drug prices all he wants, but when it is holding back rules, providing accountability and prevent drug companies from overcharging rural back guidance to clarify how the 340b discount program works and cut resources for providers who are caring for the patients and families least able to afford care.

he's not going to have a lot of credibility and his promises won't come true. even if president trump doesn't appreciate the value of the 340b program. many hospitals across the country and many of the patients that they help do. like a retired social worker in centralia, washington, who has been fighting melanoma for five years. thanks to the 340b program, her medication costs $45 a month. without the program it would cost several hundred dollars. like a man in olympia, washington, who lost his health insurance while fighting a very aggressive cancer. thanks to 340b, he could afford to continue his chemotherapy. like many patients in struggling communities across the country, who fear care might be out of reach or out of budget, but have learned health providers were able to use this 340b savings to stretch its resources far enough to cover them. there are many stories from my state across the country about how this program is so important.

so i'm very glad we have this opportunity to discuss how we make sure 340b remains accountable enough to fulfill its intent, and strong enough to continue serving our communities for generations to come. so i look forward to what we're hearing what our witnesses have to say about this day and thank you, mr. chairman for having this hearing. >> thank you, senator murray, and thanks for your cooperation in scheduling these hearings and the witnesses. our two witnesses today are independent witnesses. they have focused their time, studying the program. first we'll hear from ann maxwell with the office of inspector general at the department of health and human services. she served that office for 18 years. her current role, she conducts national evaluations of health

care programs to improve program integrity and prevent fraud, waste, and abuse. second, deborah draper with the government accountability office. she has extensive research in our current role, focusing on health policy and research in medicare, medicaid, mental health, in the financing and delivery of health care services. welcome our witnesses, interview each with summarized remarks in about five minutes, then we will go to questions. ms maxwell, let's begin with you. >> good morning, ranking member murray and other distinguished members of the committee. i'm pleas -- i want to start by thanking you for bringing the attention of the important role of robust oversight. oig shares that commitment to oversight and has over the years worked to ensure the 340b program has the internal controls that will allow us all

to feel confident that the program is operating the best health care needs of low income patients. in the past decade, they have made great strives in improving -- strives in improving the program. what remains to be done is to build on the program. one, lack of transparency. two, lack of clarity in program rules. these challenges compromise the program's ability to fully deliver the mandated discounts. to overcome these challenges, the oig has made several recommendations. i'll start with our recommendations to improve transparency. oig recommends they make prices transparent, by sharing them with providers and states. this allows providers and states to verify they are not being overcharged.

currently providers have to trust drug companies are, in fact, provided the mandated programs. similarly states have to trust that providers are passing along that discount for medicaid patients. we think there should be an ability of trust, but also verify. especially since we have no instances in overcharging in our work. congress did give them the authority to share these prices with providers in 2010. however eight years later, he's still working to implement the secure data system to share them. to share the discounted prices with states, he would need more authority. in addition to pricing information, the state needs transparency, as to which the claims would recommend drugs. even if the state gains visibility into 340b prices as the oig recommends, then medicaid may end up overpaying for drugs unless they could identify which claims should be reimbursed at the lower 340b prices.

transparency into the drug claims would also assist states, incorrectly collecting rebates from drug companies. without it, states may lose out on savings if they misidentify the drug as having already received the 340b discount. on the other hand, misidentification of the drug claims, they will put drug companies at risk of paying duplicate discounts on the same drug. oig recommends that they work with cms to ensure the 340 claims are accurately identified. the second area needing improvement is to clarify 340b program rules, which in some cases have failed to keep up with the evolving complexity of the program. in particular oig work has been identified by two areas, in which program rules like clarity and as a result, they are not consistently implemented. first, the guidance addresses

patience eligibility. leaves room for which of the patient's prescriptions might be eligible in retail pharmacy settings. in these retail settings, we found providers are making different determinations of what prescriptions are eligible for the 340b discount. second, program guidance does not address how to handle uninsured patients. all of you in our retail pharmacy, we found in some instances, uninsured patients are paying out of pocket, full price for drugs that have been purchased at steep discounts. and they should clarify with the providers as they must offer a discount to uninsured patients. to support her efforts to create clear and forcible program rules, we encourage congress to consider providing them with general regulatory authority over the program. i appreciate the opportunity to

present their recommendations to improve the program. greater transparency in prices and claims, along with clear program rules will ensure that the full benefits of the program support low income patients who depend on their safety net. at this time i'm happy if you have any questions, thank you. >> thank you, welcome. >> thank you, chairman alexander, ranking member murray and members of the committee. thank you for the opportunity to be here today to discuss the drug pricing program. the program was created by statute and as administered by hirsa, the program is to enable participating entities, also known as covered entities to stretch federal resources to reach more eligible patients, and provide more comprehensive services. participation is voluntary, but strong incentives to do so.

covered entities such as certain hospitals and qualified health centers can create substantial savings for 340b discounts. 50% of the cost of the effective drugs, and generate revenue to the extent that any reimbursement will exceed the 340b drug price. for drug manufacturers, 340b program participation is required to receive medicaid reimbursements for their outpatient drugs. since the 340b program first became operational in 1993, it has experienced growth in the number of covered entities and contract pharmacies. in 1993, the program had approximately 400 covered entities. by 2013 there are more than 12,000 representing covered sites. and in march of 2010, they

lifted that restriction. as a result, the number of contract pharmacies increased from about 1,300 in 2010 to near hi 19 -- nearly 19,000 in the beginning of 2019, em compassing more than 20,000 arrangements. we recorded the oversight that was inadequate to provide reasonable assurance, that they were in compliance with the program requirements. as a result of the identified weaknesses, we made four recommendations. one recommendation was for them to conduct the audits for the covered entities to comply with requirements. the recommendations was a result of the findings, which they primarily relied on participants to self-police and ensure their own compliance. in 2012, they initiated audits to cover entities. since 2015, they have conducted 200 audits annually. this currently represents less than 2% of the total number of covered entities, participating in the program.

the audits conducted today, they have identified instances of non-compliance including the dispensing of 340b drugs to ineligible patients. and to charity the guidance for cases -- clarify the guidance in cases for which the drugs were restricted. this is a as a result of our findings. when the supply of the drug is limited, manufacturers may have restricted distribution, but the manner in which they did so is not always clear. they issued updated guidance in 2012, which addressed recommendations. the remaining two recommendations, they were for them to issue more specific guidance on the definition of a patient eligible to receive a drug purchased through the 340b program and the criteria the hospital must meet to be eligible to participate. these recommendations are a result of our findings that the lack of specificity in the guidance could be interpreted in ways that were not consistent with the program's

intent. they have not succeeded in addressing the two recommendations. in 2012, they developed a comprehensive 340b program regulation, but the court ruling found the rule making authorities were limited to specified areas. in 2015, they issued proposed guidance. and subsequently they withdrew plans to finalize it, following the administration's directive agencies to withdraw pending regulations and guidance. and more recently they indicated that it needs broader regulatory authority for areas such as hospital eligibility. and in summary, while they have taken some steps to improve the integrity of their oversight of the 340b program, a number of important issues will remain including whether the intended program, which was established 25 years ago is still relevant today, given the vastly changed health care landscape and 340b program environment. and they will continue lack of specificity, program guidance,

most notably the definition of the patients and the hospital eligibility criteria. and until these issues are resolved, they will continued to be questioned about the integrity of the 340b program and their ability to provide effective oversight. mr. chairman, this concludes my opening remarks. i would be happy to answer any questions. >> thank you, dr. draper. we will now begin a five-minute round of questions. senator isaacson? thank you mr. chairman and thank you to both of you for being here. i was sitting here, contemplating what i might ask. realizing i'm so confused. and this is going to remind me of some of the explanations of the signs that will be complicated and simple. but you were just talking about determining if we are still carrying out the intent of the original program.

and to enable participating entities, also known as covered entities to stretch federal resources, to provide more comprehensive services. >> and that would be like hospitals, is that correct? >> yes, the federal grantees, the qualified health centers. >> you said there are 19,000 of them as of this year? >> yes. >> with 46,000 sites. >> okay. >> the pricing of the pharmaceuticals will be done by the pharmaceutical company that sells them to the hospital providers of the hospital? is there a middleman they go through? do they go through the manager? or insurance companies or directly to the hospital? >> from the hospital? >> yes.

and the covered entities, they have some restrictions on how they would go about purchasing the drugs. for example they can't use group purchasing organizations because of some of the issues that are around the discounts. and first the vendor program, to purchase the drugs. >> and so there are various ways? >> yes, so they could require the drugs. >> under the rules, the pricing is the same no matter what in terms of the pharmaceutical company? >> whatever the listed price is from the company. >> and you probably made a comment about whether there was enough transparency to really be sure of where the program is functioning with intent? i take it that it meant the company from the pharmaceutical company is justifying the charges? is that correct? >> yes, the focus of the transparency is ensuring they are realizing the providers as well as states. right now they don't have visibility into the prices. >> tell me quickly right now, how do you currently do that? >> right now, states don't have

visibilities in what those prices are, so they simply pay what they are charged. >> and that's why you use the term verified, is that right? >> correct. >> it sounds like we have a problem in search of a system to evaluate it. listening to testimony about it, we really need to be able to trust and verify the cost that's put in by the company, to make sure they become eligible to make those purchases that are qualified, delivering it to the intended people. that's what it sounds like to me and we probably need to work on that, mr. chairman, as a committee to help them with the program. and i yield the rest of my time. >> thank you, senator. senator murray? >> and that will be a greater need for 340b program integrity. to ensure 340b resources will be used to help safety net providers stretch their group. the scarce resources to serve both the greatest needs as they stated with the goal.

[ change in captioner ] make sure the -- drug companies were accountable for overcharging? >> yes it did. hearses authority to regulate that was upheld in court. >> so, why hasn't it been implemented? >> since finalizing the rule in 2017, transfer has -- hersa has delayed the date. it has been delayed until 2019. >> >> i noticed they delayed it again last week. the same day the president said he was cracking down on the pharmaceutical industry. they are not moving forward on

this. i assume. they would say that, yes. >> yes. in addition to that, -- delegated to the oig. as a result, the oig has not referred -- received any referrals. we don't anticipate having any until it's finalized. >> so your testimony -- 340b patients to be clarified. i believe that needs to be done in a way that strengthens this program, and helps many patients. has hersa attempted to address the issues of hospital eligibility and patient definition to assure that the 340b is being implemented consistently across the country ? -- they have intended to do one with the 2014 regulation, and the guidance that was pulled back in 2017. so, it is still an issue. i think part of the issue, for example, the definition of a patient, there are a lot of

covered entities. look at that very narrowly, and others look at it very broadly. you have a wide range of how that is being interpreted. so, the entities that look at it very narrowly, there could be patients that could benefit from the program that are not getting that service because of the narrow definition of how that hospital or entity is interpreting the guidance. >> what happens to the draft guidance? >> it was pulled back in 2017. based on the administration directive to agencies to pull back any pending regulations and guidance. >> so, instead of working with stakeholders to provide more clarity to that guidance that was pulled back, it was punted again. as i said in my opening remarks, i think it is sabotage and it is hindering the evidence to -- for transparency, last week's drug pricing program, they argue that it doesn't work. i think that it is not the

right approach. i just wanted everybody to understand that that is what is happening. i wanted to ask one more question. hospitals provide for the community in more ways than simply caring for uninsured patients. and the university of washington, they used to program to help support medical care care what they call the 1811 eastlake housing project. that is for individuals struggling with homelessness and alcohol abuse. that care model help the county save $4 million by allowing those individuals to avoid the more expensive services, like the emergency room. we have heard from some stakeholders that better holdings of hospitals 340b savings would reduce the complexity, but it would increase transparency and better assure compliance. from your work on 340b, do you think additional reporting from hospitals on their use of 340b is helpful for program integrity? >> we are very supportive of

these program integrity. with the reporting requirements would provide greater transparency, of course. but in thinking about responsible reporting, we have to weigh that against potential provider burdens. we also think that responsible reporting is most valuable when it is tied to clear program goals. >> so, what would be the best metrics to determine which hospitals are good program stewards? >> i wouldn't be the person to opine on that. just from a program integrity perspective, we find the most valuable reporting when it is tied to clear program goals and rules. as noted already, this program lacks some clarity in the intent of the program. >> dr. draper, what is a good metric to look at? >> currently, the program does not require any reporting of how revenues are spent. i think that anything that enhances the transparency of the program, i think would

enhance the integrity of the program. but, i also think that that is tied to the issue about, what is the real intent of the program? i think there is some ambiguity around, what is the actual intent of the program? a lot of people think it is a program for low income people. indirectly, they may benefit, but that is not explicitly stated in the attached. >> -- intent. >> thank you mr. chairman. according to the maine hospital association, 25 main hospitals qualify for the 340b drug discount program. and, they receive a collect did benefit, estimated to be $105 million a year. 14 of those 25 hospitals already have negative operating margins. for some of the other 340b hospitals , with positive

operating margins, the value of the program represents the difference between a positive operating margin and a negative one. at the same time, part of what is driving the narrow hospital margins and losses is the growth in pharmaceutical spending. main hospitals have experienced a 30% increase in drug spending over the past four years. i have wanted to give you that background because the hospital association in maine has told me that if we were to limit, or eliminate the 340b benefit, it would wipe out the positive operating margins for those hospitals that actually are in the black. ms. maxwell.

you testified about the lack of transparency, to ensure that the 340b providers are not overpaying pharmaceutical manufacturers. what can we do to increase transparency, and ensure that overpayments are not occurring? >> thanks for that question. it is a really important one, and one that speaks to a number of our recommendations around transparency. we think the best way to provide better transparency is for hersa to share -- directly with providers as well as states. is there any reason that hersa is not doing that now? >> in terms of providers, hersa does have the authority that was granted in 27 with the aca. they have not completed their secure data system. my understanding that that is in progress. but it is not completed and may not be completed until the completion and effective date of the ongoing rules about

suing -- ceiling price. in terms of sharing the information, that would require more authority from congress for hersa to be able to share that. >> thank you. i -- the aging community last week about the increase in price -- during the past 10 years has tripled, despite the fact that insulin has been around since 1921. and granted, there are different modifications, but once again, we ran into this lack of transparency. and, the american diabetes association did a chart that shows the number of middlemen, including pharmacy benefit management as -- managers, wholesalers, distributors, insurers that are between the manufacturers and the patient's. and, the fact that rebates and discounts often do not have --. when senator isaacson was

talking about that lack of transparency in the system, and listening to your testimony, i think that that is a major problem in the pharmaceutical network, if you will. and, it sounds like it is hardly an issue here, as well. >> indeed. >> thank you mr. chairman. >> thank you senator collins. senator king. >> i am glad we are having this hearing took a look forward with the -- to the hearing with hersa. ms. maxwell, first for you. i want to talk about one of my critical healthcare providers in the for jim and -- virginia commonwealth university. the largest safety net hospital in virginia. it is an urban, disproportionate share teaching hospital. it is representative of the hospitals that could be hurt most by recent hhs cuts to reimbursement for 340b drugs . 340b savings have allowed these hospitals to innovate. they have created a managed

care program called virginia coordinated care for the iannucci -- uninsured. the program is not insurance coverage, but it is a partnership between vcu and healthcare providers to treat qualified uninsured individuals. when congress passed the 340b program, it explained it wanted to -- the program to stretch the federal -- further. statements by the ohe, and reports were a factor in the nearly 30% cut the payments for the 340b hospitals that went into effect in january. i am looking at one of the reports that the oig has done, which is a report dated november 2015, part three payments for purchased -- 340b purchased drugs. i want to read from the conclusion. page 13. it is important to note that our analysis was entirely financial. we did not examine the effect these changes would have uncovered entities ability to

serve their communities. just to be clear, the oig report , this one in particular, did not examine how the cuts would affect urban and teaching hospitals ability to offer more comprehensive services to their needy patients. >> that is correct. the focus of the report was to bite an independent analysis of how the savings might be shared across different fields. there was a different conversation happening about the need to bring down costs and taxpayer-funded medicare, as well as the need to reinvest in community health centers. recently wanted to provide the data to help enable that conversation. >> i think that is an important point to make. for purposes of making the policy decisions that we have to make, we obviously have to grapple with the cost and efficiency of the subject of your reports back we ever -- we also have to grapple with the consequences to patients of hospitals like vcu, of cuts, and try to balance those out. that is a fair statement, isn't

it? >> that is true. it is also good to note that policy changes like this change the financial equation. it is possible the hospitals could operate -- opt out of 340b altogether. if they do that, the discounts are lost to all parties. the hospitals, medicare, and medicare patients. >> and, that would have significant consequences as well. dr. draper, for you. i agree and i think both the chair and ranking member in your testimony have talked about the need for transparency and oversight. to any government program, including this one. in your testimony, you report that hersa has audited 200 covered entities in 2017 to ensure compliance with the program, which is a fourfold increase over the number of audits that were done in 2014 but given the number of coven -- covered entities, that sounds like a good thing to do. let me ask this question, how many manufacturers did hersa audit to make sure they were in compliance with the program and not overcharging? >> according to website in 2015.

they audited one. in 26-2017, they audited five. again, on their website, they report that they had no findings for the manufacturers. it is not a systematic project. it is a covered entity. >> i would suggest, and i think the ranking member got into this. if we are going to be doing these audits, if we are going to be systematically auditing the providers, we should also be systematically auditing the manufacturers. dr. draper, according to your testimony, the gao is preparing additional reports on the 340b program. i just wanted to ask you, what are the areas that you are examining , and when do you think these reports will be ready? >> we have two reports coming out. they will be coming out this summer. what report is looking at the issue around contract pharmacies. we are looking at the extent to which covered entities are contracting with contract pharmacies. and, some of the characteristics of those pharmacies. we are also looking at the extent to which discounts are

passed on to low income patients or individuals from the 340b program. we are also looking at hersa oversight. of the program. including-we are also looking a little bit more into the audits of the covered entities. the other thing we are looking at is financial arrangements between covered entities and contract pharmacies, as well as with ppa's. ppa's-there is a whole cottage industry that has evolved around the 340b program. that is something that will be looking at as well. us with the tpa arrangements. >> excellent. thank you mr. chair. >> thank you, senator kane. >> what arrangement --? >> third-party administrator. a lot of those are-they work with 340b covered entities to help set up and manage their 340b programs. >> thank you. senator cassidy? >> just to follow up on what senator kane said. it's obvious that the program

is being used as it is to be used, to help those lower income folks. that's a good thing. but i do want to quote a journal of medicine article, in which nyu researchers found, that if you look at the present -- provision of cancer care, in a 340b program versus a non- 340b program, there are actually fewer lower income patients and that cancer care. so, the 340b program, which ostensibly is given this discount to provide more services, statistically is associated with providing fewer services. there is no significant difference in hospital provision of safety net or inpatient care for low income groups, or in mortality among the low income revenue of the hospital service area. if you will, it is an indictment. theoretically,-i worked in a 340b hospital. some of them are fantastic. and, their patients, the poor

folks hospital where i work, they only got medicine because of this program. but it does say that there are issues with how it is currently being done. in fact, i noticed that consumer groups are advocating for it. let me point out something else. last week, kettering's jug -- drug pricing lab made the suggestion that should 340b hospitals be required to provide charity care, totally just 1% of the patient revenue, 9% of 340b hospitals would no longer be eligible for hersa -- 340b. that is, if they provided just 1% of their revenue for charity care. secondly, i will point out that if you say that-the way the business model works, is that the more expensive the drug, the greater the discount, if the hospital is not returning that discount to the pay or,

the patient or the federal government, they get a bigger spread, with a more expensive drug. now, ms. maxwell, i think i have seen evidence that the incentive is for the 340b program to use the more expensive medicine , because again, that increases their spread. is that reasonable? and do you agree with that? >> the work of the aig has not touched on that issue. our focus has been- >> let me ask dr. draper. >> we have done a report in 2015 that with medicare part b drugs, and the part b programs, and that work, we found that the 340 b hospitals were generally larger, often teaching hospitals. they tended to have a lower overall margin, but higher medicare margins. we also found that medicare part b spending at those hospitals was substantially higher than non-dish hospitals.

>> medicare part b, so, the interaction between that and 340b , is that 340b would cover the infusion drugs given on a medicare part b billing, correct? >> yes. if it is an outpatient drug. >> and so, when you say that the differential is higher, it implies, at least, that they are using more expensive services, or a greater intensity of services for whatever reason. and, that would include potentially using more expensive medications. >> it suggests that there may be some financially -- financial incentives. for prescribing patterns. >> thank you. you also mentioned that 340b entities tend to be larger hospitals. last week, researchers from yale, penn, carnegie mellon and mit published the patient -- a paper that found among other things, prices at monopoly hospitals are 12% higher than in markets with four or more rivals. does the current structure of the 340b program incentivize

consolidation? >> we really haven't done work on that. i can't really address that. i can tell you that another one of our reports coming out this summer is looking and comparing characteristics of 340b hospitals to non-tran03 hospitals, and also looking at how those characteristics have changed , pre-and post healthcare reform. >> that report is pending? >> yes. that will be coming out this summer. >> okay. and then, in 2014, oig published a report that provided useful insight into what the benefits of the 340b discounts are going . the agency found that few of the hospitals you survey, this is for you, ms. maxwell. few hospitals said they passed the 340b discounts back to the uninsured patient. these are the ones that, it is not blue cross. it is the uninsured patient that can hardly afford their personal info -- medication, frank zappa. the contract pharmacy, given

that we interviewed them for three years, no new guidance or regulation, with the goal that the patients are the true beneficiaries of the program has been issued. do you have any reason to believe that hospitals have begun to pass the savings back to the uninsured? >> we work closely with hersa and let them know about the situations. so, they were able to address them as they found appropriate. i don't know whether hersa did reach out and talk to these hospitals and out their current policies. >> so, you have no indication either way that hospitals have began to pass it back to the uninsured, or that they have not? >> that is correct. >> i yield back to you. >> thank you, senator cassidy. senator smith eric >> thank you chair alexander and ranking member mary. and, to ever testify yesterday. i wanted to start by saying, senator isaacson, i appreciate your candor in saying it is hard to figure out what is going on with drug prices, and who pays what. when, and how much and why. and, sometimes i wonder whether that isn't by design, rather than by accident.

to tell you the truth. as, i struggle to understand this. this is such an important issue in minnesota, where senator collins is talking about drug ice is increasing, for i think he was talking over all for hospitals increasing 30%. we wonder why hospitals are struggling to try to make ends meet. i want to make sure that what we are talking about in reforms to 340b programs don't hurt hospitals, especially in rural areas. i want to talk about that for a minute. i have an example. river bill -- riverview health. it is the critical bed, critical hospital. they recently told me that the 340b program has read -- allow them to remain operational. it maintains a level ii trauma center for the region. and also in -- treats an increasing number of people who need mental health services. they say, cutting back on this program, and i realize that is

not specifically what we are talking about here. every penny we spend comes to taste -- patient need. this is how we stretch scarce resources. ms. maxwell, could you just tell us a little bit about how you think the proposed changes would affect rural safety net hospitals? >> make sure i understand your question quickly. are you talking about the cuts in part b -- part b payments in particular? >> yes. also, this emphasis on-what additional regulatory burden might be placed on small, safety net hospitals? >> yes. cuts to part b on new this year. i think it is important to address your issue about how they will actually affect hospitals. we will even monitor that as -- rolls out. and see whether or not the redistribution of the savings once those cuts in any way. i think in terms of the regulatory burden, i think you are also addressing that also needs to be taken into consideration. -- inspector general is also

for greater transparency and integrity. but, we are always cognizant when -- new reporting requirements and how the information will be used to benefit stronger program integrity. >> i think this gets me to the question of, sort of transparency, for whom? and how does it work? and senator collins got to this a little bit. i also think that senator murray did. i am sort of stunned to understand how much drugs are costing. people don't know. to the people who were paying for them. it is sort of like saying, i am going to go and buy a car, but i don't know exactly how much it is costing. and i also don't know whether the person standing next to me is buying the same car and paying more or less. isn't that kind of the fundamental problem here? >> it has been a fundamental issue to the 340b program almost in six it -- it's in session.

>> and, what is the impact, do you think, not moving forward on the proposed improvements that the trump administration has been holding back? what is the impact on that on the prices that people actually paying, do you think? >> but i can refer to his report that we did back in 2005. at that time, we looked and saw that 14% of all purchases by 340b entities were in fact over the mandated price. >> what was that again? >> in 2005, of the total purchases, 14% of them were over the mandated 340b ceiling price, which resulted in $3.9 million in overcharges for that month, which is june 2005. so, we do in fact have evidence that overcharging is taking place. >> that was one month in 2005? >> yes. >> today's hearing is on the

340b program, which is of course, important, and plays an important role in making sure that people can get access to prescription drugs and quality healthcare at the same time. i hope that in this conversation, we don't use sight of the essential problem we have, which is that prescription drug prices are too high. and, people in my state and all over the country are choosing between buying the medicine that they need and other essential parts of their life. i hear the stories all the time. minnesota. while i am grateful, i'm glad that the president says that he wants to tackle these challenges. i hope that we can find some common ground. i also agree that i don't think the proposals laid out last week that at the core problem. and, i think that great evidence of that was in the pharmaceutical companies stock price went up after the president made this announcement. at the same time, we have issues with big drug companies like nevada paying to michael cohen for access to the administration pick these are the issues that i think are deeply concerning to people in my state that we have to get to

the bottom of. thank you. >> thank you senator smith. during our first hearing on 340b, it became obvious that among the witnesses, there was some disagreement about statistics, about data. so, let me ask you three or four questions. if you don't have the answer right at hand, maybe you could provide them to me after the hearing. the office of assistant secretary for planning and evaluation estimated that americans spend $457 billion on prescription drugs in 2015. is that $457 billion accurate for 2015? >> my understanding is that that is accurate for sales. >> for sales. would you measure it some other way? >> as opposed to net revenues.

that would incorporate discounts after the fact >> okay. so, overall sales. >> according to hersa, of that $457 billion, approximately $12 billion was spent on 340b drugs . does that sound correct? >> yes. i think that is what medpac reported as well. that is pre-discount, i believe. >> correct. $16 billion in 2016 and up to 19 billion in 2017. >> back on 2015, if it were $12 billion spent on 340b drugs , that was an estimated $6 million in savings for hospitals and clinics and covered entities that participated in the program. does that $6 billion figure sound right? >> it does. >> so, using those numbers, $12 billion out of 457 billion, that's about 2.6%. so, that would mean that in 2015, the purchase of 340b

drugs were about 2.6% of the total drug purchases in the country, correct? >> right. >> according to hersa, this is looking at the next year, 340b sales were about $16 billion, or about 3.6% of drug sales in the country . $444 billion in 2016. does that sound correct? >> yes. >> that would suggest that in one year, sales of the 340b program increased by about 33%. >> according to the government accountability office, hospitals, clinics, and affiliates, and you testifies him to this, participating in the program, nearly doubled from about 20,020 14 to nearly 40,020 17. is that correct? >> yes. over the past five years, hospital covered sites

increased 175%. and, federal grant he sites increased about 40%. the growth is primarily disproportionate in hospital sites. >> would you both agree that it would be hard for us to do anything else until you clarify the intent of the program? >> i think clarifying the intent of the program would go a long way to establishing what the guidance needs to be, and, it will help create-the guidance needs to happen to create the transparency, and the enhancing, right now there is a lot of ambiguity as to what the program rules are. >> ms. maxwell. >> i agree. clarity in the program goal, as well as clear program rules are the foundation of a strong program in taggart a strategy. >> in the previous hearing, it was pretty clear that we could not tell in all instances on what the covered entities were spending their money.

>> and, in other conversations since then, i have had hospital stay, we are glad to tell you. and so, is it true that because of the way clinics are supervised, that we know more about how they spend their money than we do about hospitals? is there any reason why we shouldn't ask hospitals and clinics and covered entities to tell us how they spend this $6 billion? if it goes to help individual patients reduce the price of a specific drug, that is one thing. if it goes for some other purpose, which it could, and does, it may be a worthy purpose, that's another thing. is there any reason not to ask for that information? >> well, the underlying issue is that it is not a requirement of the program that they have to -- report how they spend the money or what they use the money for. >> for grantees, there may be

requirements to spend the money a certain way. >> so, it doesn't require that? but, it would seem to me that we could do a better job of oversight if we do that. >> i think, it is somewhat dependent on the sophistication probably of the entity and what type of data systems or other systems they have to put in place to really monitor that. but, i think that it is something that currently should be explored. i think this is another issue that, there will always be" -- questions about the integrity of the program at that information is not available. >> well, we are not clear about the intent of the program. is that information is not available, it makes it difficult for oversight. >> i was going to say, people have a lot of interpretations on what the intent of the program is. but, it is not consistent with what the intent, the state of the intent is.

something is on the program for low income folks, and it may will be. by, that is not explicit in the intent. so, i think, deciding what the intent of the program would go a long way to really helping with creating the necessary guidance and regulations that are needed for the front rupee >> thank you very much. well, i have run over my time pick senator warren is always good about sticking to her time. editor warren. i have set a bad example. >> thank you mr. chairman. so, the 340b program has one basic requirement. drug companies must provide discounted medications to hospitals and clinics caring for the most vulnerable patients. kids with cancer, the uninsured, the underinsured, people with hiv and aids. federal law specifies the formula used to calculate this discounted price, which is called the ceiling price. in order for the 340b program to work , the steering price calculations need to be done

correctly. and, there need to be consequences when drug companies break the law and deliberately overcharged for these drugs. so, let me start epic dr. draper, in 2011, the gla raised concerns that the 340b program primarily relies on self policing, that is, participants and ensuring their own compliance with program requirements. so, tell me, why might it be a problem if a drug company is the only one doing the ceiling price calculations? again, no one is able to check his work? >> on the covered entity part, the prices are not available to them. so, they don't know really-the self policing only works if you have transparency. you have the information that you need to really self police. the information is not available to covered entity. on the other hand, too, with drug manufacturers, they may

suspect that a covered entity is dispensing drugs to ineligible patients. but, the burden-they have the authority to audit a covered entity, but there are a lot of burdens associated with that, so they rarely do that. it is both ends. >> i get your point but, i want to start with the premise of how the program is set up to begin with. when it comes to these drug companies, if no one can check their work, they could cheat, charge more for drugs, and no one could catch them when they break the law. there is just no way to catch them. senator smith started on this issue. so, let me ask another part of this. ms. maxwell, the oig has conducted numerous analyses of 340b programs-prices. is there evidence that drug companies have overcharged healthcare providers in the 340b programs? >> yes. there is evidence. >> so, these findings led congress to include a provision in the affordable care act to

crack down on this behavior. the aca required the government to create a verification system for ceiling prices. and, make sure that hospitals and clinics got refunds of the drug companies overcharged them. now, congress also established fines called civil monetary penalties. but, drug companies could be charged if they knowingly and intentionally overcharged a healthcare provider. ms. maxwell, the oig is in charge of enforcing those civil monetary penalties. how many penalties have you assessed to date? >> to date, we have received no referrals from hersa, and we don't anticipating receiving them until that rule is made effective, which is now looking like july 2017. >> so there is evidence that drug companies have overcharged providers. right now, you have not received any referrals. and the reason you have not received any referrals is because the trump administration has already the

delay the implementation of these penalties, not once, not twice, not three times, but for separate times since 2017. and, just last week, they proposed yet a fifth delay. when president trump delivered his big drug pricing speech last week, he said that the 340b program, a drug discount program, contributes to the problem of higher drug vices. and, that is -- arts of the speech, the drug industry lobbyists must have stood up and cheered. because, here is the thing. at the president is truly worried about the connection between high drug prices and the 340b program, he can start by implementing the law that congress wrote to actually stop drug companies from cheating on their discounts. no one should be above the law. that includes giant drug companies that are raking in profits while complaining about

a program that helps out our most vulnerable patients. thank you. >> thank you. for your usual succinct this, senator warren. senator baldwin. >> thank you mr. chairman. i have long worked with a group of bipartisan colleagues in the senate to protect and strengthen the 340b program . in 2013, we called on hhs to consider recommendations from a 2011 gao report. however, the administration continues to delay any real action to enhance program operations for all participants. instead, they continue to on fairly single out and target hospitals. aurora, and downtown milwaukee, wisconsin, is one of our 71

hospitals that relies on the 340b program to care for its uniquely vulnerable population. aurora estimates that over 8000 of its patients have undiagnosed hepatitis c, with over 37,000 undiagnosed cases in the state. they have used their 340b savings to develop a screening program, and to partner with the city health department, a local ryan white clinic, and a nearby community health center to improve community health, and better address hepatitis c. aurora recently shared their frustrations with regular instances where drug companies refused to provide them with 340b -the trend -- the 340b price of a drug. often, the manufacturer will provide no excuse at all. or, they will claim that the

drug is in short supply. this forces the hospital to buy the needed medication at full cost, at which point, the drug is curiously no longer in short supply. gao recommended that hersa clarify guidance to prevent drug companies from restricting distribution of drugs at 340b prices. while the agency released clarification, hospitals in wisconsin continue to experience these problems. dr. draper, what additional work do you plan to do to examine instances where drug manufacturers refuse to provide the 340b price, and what other oversight measures could help address this? >> we don't currently have work underway or have any plans work related to that. however, that is a hersa

oversight issues. if hospitals are experiencing that, they need to work with hersa to resolve the issue. that was something that we found in our -- our work that led up to the 2011 report that manufacturers for drugs that were inherently in short supply, they often restricted distribution in a way that was not always clear between 340b and non-tran03 hospitals . so, that is a hersa oversight. and it is a hersa enforcement issues. i think the hospitals need to work with hersa to resolve that issue. that should not be happening in accordance with their updated guidance. >> okay. many wisconsin 340b hospitals have also told me about numerous audits that they experience. not only from their own internal, rigorous self auditing. but, also from hersa audits as well as audits by the drug companies. your agencies have recommended

increasing oversight of drug manufacturers, including increasing audits, transparency, as well as the dispute resolution process. for covered entities to better obtain information from manufacturers. i am concerned that this uneven playing field between hospitals and drug companies continues to persist. bringing haas -- burning hospitals in the program. dr. draper and ms. maxwell, can you explain why your agencies recommended enhanced drug manufacturer oversight, such as audits, and what gaps remain that the administration has failed to address? >> with respect to our work, the gaps that remain are the visibility into the prices. right now, providers in states do not know what the 340b ceiling prices are. at this point, they just pay what they are charged. and, we have evidence from previous work that there are overcharges that occur. so, we strongly encourage hersa

to complete the data system to share the prices with the providers. and also, to seek the authority needed to share the prices with dates. >> and currently, we encourage oversight of all entities participating in the program. for covered entities as a result of our recommendation from 2011, hersa now conducts about 200 audits to covered entities each year. earlier, i had talked about, it is not a systematic process for manufacturers in 2015. they did one manufacturer audit each year in 2016 and 2017. they did five. we would encourage that there is a process to ensure that all participants in the program are adhering to program regulations and rules, and that there is greater transparency. >> thank you mr. chairman -- mr. chairman. >> thank you senator bohlman.

-- baldwin. i want to thank you witnesses for the very helpful comments. the record will remain open for 10 days. members may submit additional information at that time if they would like the committee will meet again on tuesday, may 22 at 10 am for a hearing on america's healthcare workforce. thank you for being here. the committee will stand adjourned. >> join us thursday when directors from the national institutes of health testify before a senate appropriations subcommittee on the presidents 2019 budget request for the research centers. our live coverage starts at 10 am eastern here on cspan3. later on thursday, it is comments from small business administrator -- mcmahon. she is expected to discuss estate a small business in america at the national press club.

live coverage starts at 1 pm eastern here also on cspan3. this weekend, c-span takes you to selma, alabama. with the help of our cable partners, we will cross the -- page. arriving in a town known for his role in the civil war and the civil rights movement. saturday at 5:30 on -- eastern on book tv. this is the home that dr. martin luther king jr. used as his selma headquarters as he planned the selma to montgomery march. it is featured in the book, the house by the side of the road. there was a photographer here. he worked for life magazine at the time, who was embedded in the house. he wanted to capture dr. king's emotions as he watched on television, president johnson, committing to signing the voting rights act. this is the chair that dr. king was sitting in that night, watching that television. president johnson addressed the

nation. >> we will meet the first african-american fire chief in the city. chief henry allen, talking about his book, marching through the flame. on sunday at 1:30 pm eastern on american history tv. a look at the voting rights movement that started in the 1930s. and, visit several locations around the town that were integral to the movement. and then, of the -- visit to the edmund pettis bridge. before and after the battle for civil rights. >> they seen his name. -- a sense of the past and present come together. they have a modern bridge with the name -- here in the south. >> watch cspan's torah selma, alabama. saturday at 5:30 pm eastern on book tv. and sunday at 1:30 pm on american history tv on cspan3. working with our cable affiliates as we explore america.

this weekend, but tv will have live coverage of the ninth annual -- book festival in maryland. starting saturday at 10 am eastern with talk radio host bill press and his book, from the left, a life in the crossfire. national institute of mental health barbara let's go with her help, the neuroscientists have lost -- lost her mind. my telemedicine recovery. psychiatrist lloyd set them or, treating our dependence on opioids another drugs. former attorney -- also wrote death of an assessment. -- assessment. the true story -- philip padgett, with his book, advocating overlord, the -- strategy and the atomic bomb. watch live coverage of the ninth annual gettysburg book festival in maryland saturday at 10 am eastern on cspan 's --

2's book tv. >> sunday night on afterward. barbara ehrenreich with her book natural causes. which explores how the parties ages and dies. ms. ehrenreich is interviewed by new york times science reporter, natalie andrew. >> that is one of the jobs of being old, is passing the torch. >> taking what you know and have done or accomplished or want done, and passing it on to younger hands. >> watch afterwords on sunday night at 9 pm eastern. on cspan's 2 book tv. up next, religious leaders, academics, and journalists take part in a discussion about religious politics and the republican party. this one hour and 50 minute event is hosted by georgetown