Even as they sparred on broader healthcare policy and funding topics fueling the ongoing government shutdown, senators of the Health, Education, Labor and Pensions Committee appear to agree that potential reforms to the controversial 340B Drug Discount Program must not harm struggling providers or their communities’ access to care.
During a Thursday morning committee hearing, senators reviewed findings and limited recommendations issued over the last few years by the Government Accountability Office (GAO) and the Congressional Budget Office (CBO).
Also highlighted were oversight shortcomings, common practices among larger systems and a lack of transparency that have struck a nerve with the bipartisan lawmakers who have been reviewing the issue. Perhaps chief among these was the lack of a statutory requirement for covered entities to show how their savings are being redirected to serving their at-need communities.
Only Federally Qualified Health Centers (FQHCs) participating in the program are required to have a sliding fee discount for low-income individuals’ medical services, explained GAO Health Care Director Michelle Rosenberg—and that’s due to external grant requirements rather than the 340B program.
In some cases covered entities’ new contract pharmacies (the number of which has skyrocketed in recent years) are setting up shop in high-income communities, allowing health systems to secure purchasing discounts for drugs that are not being dispensed to low-income patients, lawmakers including committee Chair Bill Cassidy, M.D., R-La., noted. Further, not all hospitals appear to be passing along their discounted drug purchasing costs to their low-income patients in the form of reduced point-of-care prices, witnesses said, and instead direct the surplus into general funds that are effectively spending black boxes.
“We have some rural hospitals that can hardly make ends meet, we have FQHCs that are truly serving low-income patients—but then we have some people who are 340B hospitals that are running Super Bowl ads and have huge CEO salaries,” Sen. Jon Husted, R-Ohio, said. “So what I hope we’ll be able to accomplish with this conversation is targeting the savings that come out of 340B toward the places that are most in need of those resources to help drive down the costs for consumers.”
Witnesses run down 340B’s shortcomings
At a broad level, as federal office heads serving as the hearing’s witnesses explained, are findings that the subsidy program—intended to support safety-net care by discounting drugs for hospitals and health centers with heavy Medicare, Medicaid and uninsured patient burdens—has grown substantially in scale during the past several years.
Participation in the program drives higher government spending largely due to increased use of costly drugs and other service expansions, CBO Health Policy Studies Unit Chief Aditi Sen, Ph.D., said. Further, the program appears to create a financial incentive (PDF) for providers to vertically consolidate in order to maximize their discounts, she said.
At the same time, Rosenberg said oversight of the program as conducted by the Health Resources and Services Administration (HRSA) has long had substantial gaps:
- Though audits of participating covered entities were introduced in 2012, only a sample of new provider participants and existing participants (200 from both groups annually) are audited for eligibility.
- There’s no process to assure with confidence that all covered entities have a contract with local governments to provide services to low-income individuals ineligible for Medicare and Medicaid in accordance to law.
- There’s no assessment or auditing for duplicate discounts across multiple payer programs.
- There’s no instruction for covered entities to oversee their unlimited number of contract pharmacies to prevent duplicate discounts or diversion.
- Covered entities given corrective actions during an audit are not required to provide evidence of implementing those actions before their audit is closed.
The GAO has 15 open recommendations to the HRSA to address these and other weaknesses, Rosenberg said, which cited a combination of limited statutory authority, litigation concerns, limited enforcement resources and concerns of burdening covered entities for limited reform.
“Over the years, the program has grown and become more complex,” Rosenberg said. “Federal oversight needs to catch up with this growth and related changes in order to ensure that the program is operating as Congress intended.”
In contrast to Rosenberg and Sen’s informational responses to the senators’ questions, the hearing’s third witness, William Feldman, M.D., a physician and health policy researcher at UCLA, was not restricted by his position from commenting on specific policy options the lawmakers could pursue.
Alongside the oversight gaps highlighted by the GAO, he elaborated on the CBO’s findings regarding 340B’s incentives for greater provider spending with warnings that the current iteration of 340B “tends to direct the largest sums to hospitals with the highest volumes of medicine prescribed by top-grossing specialties, to locations with the most commercially insured patients.”
For the program, Feldman encouraged three broad fixes: greater transparency around revenue generation and spending; more funding for the HRSA’s oversight; and more limits on child sites and contract pharmacies, “for example, by ensuring they are also located in areas that serve disadvantaged patient populations.”
That said, Feldman stressed that fixes to 340B alone won’t address the greater issues of drug costs and financially struggling providers cited by many of the committee’s members.
“Any serious discussion of 340B should be accompanied by equally serious discussion of how we can lower drug prices in our country,” he said while advocating for expanded Medicare price negotiation and drugmakers’ use of patents to limit competition from generics.
Shutdown’s specter looms, yet parties remain aligned on 340B
Thursday’s hearing unfolded amid a government shutdown that has entered its fourth week. With cuts to the Medicaid program and expiring health coverage subsidies at the forefront of that dispute, the committee’s discussion on how to amend Congress’ decades-long safety-net program proved to be yet another battleground for Republicans and Democrats.
Nearly every Democrat in the room as well as Feldman took time to advocate in favor of broader government health spending, which they said would further the intent of the 340B program by securing affordable care for low-income communities. They also made a note that any changes to the 340B program that pressure providers’ finances would be particularly devastating amid the upcoming cuts.
Among those potential program changes raised by some Democrats is an upcoming HRSA pilot that would swap covered entities’ upfront discounts for after-the-fact rebates as administered by participating drug manufacturers. Sen. Tammy Baldwin, D-Wis., said she’d heard from a constituent community health center that the model would increase their upfront drug costs by 2,360% and that other rural hospitals would face millions of dollars of increased upfront costs.
Feldman agreed that the pilot would be damaging to cash-strapped providers but also worried about handing the pharmaceutical industry the reins on determining when a rebate is appropriate. To Baldwin and others, he advocated for a nationwide third-party clearinghouse as a more appropriate means to settle concerns of duplicate discounts.
Republicans on the committee held the line on Democrats’ shutdown-related critiques, often responding by saying it’d be more appropriate to address the issues of healthcare costs and coverage by addressing underlying factors such as fraud, oversight and unnecessary spending—some of which they suggested is at play in programs like 340B.
“Simply throwing money at a problem, it doesn’t solve a problem,” Sen. Roger Marshall, M.D., R-Kan., said. "We need to go after the true issues.”
But, despite the back-and-forth barbs, committee members from both parties did not appear to disagree on most of the outlined issues and proposed fixes for 340B. They were particularly united when discussing the need to ensure rural hospitals and FQHCs maintain access to the discounts while imposing few to no new burdens.
“[The 340B] program made the difference between a negative operating margin and a positive operating margin for many Maine hospitals,” Sen. Susan Collins, R-Maine, said. “If we were to limit or eliminate the 340B benefit without other policy changes, we would wipe out the ability for these hospitals to operate—and I’ve heard the same from many of Maine’s FQHCs.
“This is something that I think we need to take a look at. We certainly need audits, we need accountability, but we’ve got to be careful that we don’t restrict the ability of the savings from this program to provide much-needed healthcare services,” she said.
Industry weighs in
Though Thursday’s hearing did not include representation from any industry groups, plenty of major industry associations and advocacy groups submitted comments or gave statements on the proceedings.
The American Hospital Association (AHA), in a submitted letter, took issue with the CBO’s “unsupported allegations” that 340B encourages greater federal spending and provider consolidation. The lobbying group attributed the program’s growth to changes passed by Congress or condoned by the Department of Health and Human Services. It also pointed to regulatory changes that encourage more outpatient care, specialty drug use and general drug price growth as factors.
“Importantly, as the program has grown in size, so have the benefits to communities made possible by the 340B program,” the AHA wrote. “… The flexibility the law affords each 340B hospital to determine how to use its savings to address the unique health care needs of the patient populations it serves remains a critical feature of the program that has enabled its success. Thus, we ask Congress to maintain its commitment to the 340B program and the patients and communities that benefit from it.”
PhRMA, a group representing drug manufacturers that has called for reforms to the program including those at the center of the upcoming rebate pilot, said ahead of the hearing that 340B “has become a revenue stream to large, tax-exempt hospitals and clinics, PBMs and national pharmacy chains.”
Shannon Burger, president of Ryan White Clinics for 340B Access, thanked the committee’s members “for their strong, loud and bipartisan support” of the program. She painted the hearing’s supportive tone as a victory for safety-net patients and a loss for the pharmaceutical industry, which she noted recently launched a marketing campaign calling for reforms to the subsidy program.
“The U.S. Senate won’t be fooled by their misinformation,” she said.
Ted Okon, executive director of the Community Oncology Alliance, echoed opening comments from the HELP committee's chair Cassidy that “taxpayers foot the bill for the program while 340B hospitals use more and expensive drugs, which cost patients more.” Okon added that the program’s costs were “unfortunately ignored” by several of the senators who participated in the hearing.