House Subcommittee Lands On Transparency For 340B Reform

Congress appears to be inching toward injecting more transparency into a controversial program that forces drugmakers to give safety-net hospitals steep discounts on drugs.

It would be a win for pharmaceutical manufacturers, which have long lobbied that hospitals be required to account for their savings in the 340B program — or that it be overhauled entirely.

The latter appears unlikely, after lawmakers on both sides of the aisle expressed blanket support for 340B during a House Oversight and Investigations subcommittee hearing on Tuesday. However, members said they approved of more oversight to try and stop financial gaming in the program.

Though “we’re all in support of 340B … I think nearly all of us agree that the status quo is not acceptable,” said Rep. Larry Bucshon, R-Ind.

Hospital arbitrage

The 340B Drug Pricing Program was created more than three decades ago to support hospitals caring for a disproportionate number of low-income populations, and has grown to include more than one-third of U.S. hospitals.

Meanwhile, the volume of 340B drugs is rising: Drugs purchased in the program grew by almost a fourth to about $54 billion between 2021 and 2022, according to data from the Health Resources and Services Administration, a subagency of the HHS that oversees 340B.

As 340B grows, so too have concerns about bad actors in the program — especially that participating hospitals, which are called covered entities, might be profiting from the savings, instead of reinvesting them in patient care.

However, safety-net hospitals argued Tuesday that 340B is a financial lifeline they couldn’t survive without.

The program is a “critical factor in determining whether we operate at a razor-thin positive margin or an unsustainable deficit,” testified Matthew Perry, the CEO of Genesis Healthcare System, a rural provider in southeastern Ohio.

Genesis saves roughly $56 million annually because of the discounts, and invests those savings in specialized services like cancer care that it wouldn’t otherwise be able to provide, Perry said.

“In the absence of 340B our organization doesn’t work. It’s just that simple. We are out of business,” Perry said.

However, “it is not mandated to disclose where these dollars actually go or how much is made from the program. Thus we in Congress are mostly blind as to what happens with these dollars,” said Rep. Morgan Griffith, R-Va., the chair of the subcommittee.

Griffith cited a New York Times investigation published in 2022 finding nonprofit giant Bon Secours Mercy Health was using a Virginia community hospital’s eligibility for 340B to generate immense profits, while slashing services for patients.

It’s a “reverse Robin Hood scheme” to “steal from the poor to help the rich,” Griffith said. “It is our job to step in and provide oversight.”

Research is mixed on hospitals’ use of 340B funds, with some studies finding hospitals use revenue from the program to expand healthcare services for low-income people and subsidize uncompensated care. Others have used it for purposes unrelated to patient care, like acquiring physician practices. Similarly, audits of covered entities have found many providers aren’t complying with 340B requirements, like not reselling discounted drugs.

Large hospital corporations use 340B to increase their revenue through a variety of strategies, testified Anthony DiGiorgio, a neurosurgeon at safety-net hospital University of California San Francisco Health.

For example, hospitals will try to meet but not exceed the number of needy patients required to qualify for 340B to gain access to discounts in the program without taking on more high-cost patients than absolutely necessary.

“These are consolidated, bloated, inefficient systems gaming a program that was meant for the safety net,” DiGiorgio said.

Some hospitals will also expand into wealthy areas using so-called “child sites,” or outpatient clinics located outside their main facility, according to Bill Smith, a senior fellow at free market think tank the Pioneer Institute. That allows them to dispense more drugs at the discounted 340B price, while raking in more reimbursement from the commercially insured patients in those areas.

“Hospitals’ ability to buy low and sell high can create misaligned incentives that tend to steer the 340B program off its mission,” Smith said.

Contract pharmacy debate

Hospitals aren’t the only stakeholders twisting the program’s incentives, witnesses said. Drugmakers have come under public fire and faced lawsuits from the federal government for restricting which pharmacies hospitals can use to dispense 340B drugs, in a bid to protect profits. That’s because 340B discounts can be steep — generally 20% to 50% off the list price of a drug.

Those restrictions are cutting into provider savings. Complying with the shrinking pharmacy networks has caused the operating income at Carolina Health Centers to fall $667,000 each year, testified Sue Veer, CEO of the South Carolina federally qualified health center.

Similarly, contract pharmacy restrictions have cost Genesis about $5.7 million over the last three years, Perry said.

Drugmakers say their gripe with contract pharmacies is that hospitals’ use of the facilities goes beyond the intent of the 340B program. Historically, hospitals weren’t allowed to contract with more than one third-party pharmacy. However, HRSA threw out that limit in 2010.

Now, some large systems contract with hundreds of pharmacies, many thousands of miles away, said Smith.

Perry defended hospitals’ use of contract pharmacies, noting facilities often contract with a number of pharmacies to meet their patients’ dispensing needs, including specialty pharmacies not in their local area.

Though lawmakers appeared worried about snowballing use of contract pharmacies, the pharmaceutical industry found few defenders in the subcommittee.

“I’m not going to argue that we don’t need some changes,” but “I am not worried about big pharma and the money it’s marking,” said Rep. Jan Schakowsky, D-Ill. “This is the most profitable industry in the United States of America, bigger than big tech or big oil. They’re doing just fine.”

Creating transparency; other fixes

Witnesses and representatives coalesced around transparency as the best near-term fix to reduce profiteering in the program.

Congress could require hospitals to disclose their 340B purchases, revenue from the program and what investments in patient care the funds support, suggested Smith and DiGiorgio.

Perry and Veer also said they support transparency. However, the provider executives said Congress needs to ensure disclosure requirements don’t create a siloed image of 340B.

For example, reporting only the number of uninsured patients doesn’t reflect other needy patients that benefit, like the underinsured or those covered by Medicaid, according to Carolina Health Centers’ Veer.

“I think we’re in agreement that there has to be required reporting of use of savings and populations served. The big question is how we get to that,” she said.

Congress could take more aggressive action, like increasing the threshold for eligibility by raising the DSH adjustment percentage, or expand 340B eligibility requirements to child sites to ensure 340B discounts are only being given where they’re most needed, according to DiGiorgio.

Congress could also create a clearer definition of a 340B patient to try and prevent hospitals from applying that definition to a broad set of individuals to maximize their discounts, he said — like only patients with an ongoing and established relationship with a facility.

“That certainly could be one of the requirements for identification of a 340B patient,” said Rep. John Joyce, R-Pa.

340B bills

Tuesday’s hearing is the latest foray by members of Congress into 340B reform. Along with other committee hearings and draft legislation circulating on the Hill, lawmakers have introduced a handful of recent bills tweaking the program.

One called the 340B ACCESS Act was introduced by Republican lawmakers in the House late last month. The bill would create new eligibility criteria for hospitals to participate in 340B, require hospitals to report how they use their savings from discounts and clarify definitions of 340B patients and contract pharmacies in a way that would restrict the discounts.

As such, the bill is supported by the pharmaceutical industry, and opposed by hospital groups. Maureen Testoni, the CEO of a 340B hospital association, slammed it as “the legislative version of a pharmaceutical industry wish list” in a recent statement.

During the hearing, DiGiorgio and Veer called the bill a good start on policy reforms. However, proposals like 340B ACCESS shrinking the scope of the program would “have a devastating impact on our hospital … In fact, it would likely put us out of business altogether,” Genesis’ Perry said.

At least one Democrat agreed.

“The significant reworking of the 340B program that some of our Republican colleagues recently proposed will not reduce prescription drug costs or expand access to care,” said Rep. Frank Pallone Jr., D-N.J.

Hospitals support a dueling Democrat-led bill that was introduced in the House in March, called the 340B PATIENTS Act. The bill would penalize drugmakers that restrict hospitals’ use of contract pharmacies in the program.

Based on the Oversight and Investigations hearing, political will in Congress seems slim to cut back the 340B program — without a clearer view of how hospitals are using the funds first.

“What I heard from the panel is uniform support generally for 340B,” said Rep. Kathy Castor, D-Fla.