Legislators from both sides of the aisle appear to agree that the controversial 340B drug discount program needs refinement rather than upheaval and broadly welcomed suggestions for greater transparency and preserved access to care during a Tuesday oversight hearing.
However, statements and questions from members of the Energy and Commerce Committee’s Oversight and Investigations Subcommittee showed that the parties don’t see eye to eye on whether the program’s substantial growth reflects the hospital sector’s widespread abuse of the nation’s second-largest prescription drug program.
“I worry that the program is being co-opted by larger, more profitable healthcare systems that are using it solely for financial gain at the expense of patients that need it most,” Energy and Commerce Chair Cathy McMorris, R-Washington, said.
About a third of the country’s hospitals participate in the 340B program, which requires manufacturer discounts on most drugs administered in the outpatient setting to help safety-net providers. Data from the Health Resources and Services Administration (HRSA) suggest that discounted drugs purchased wholesale under the program grew 22% to almost $54 billion from 2021 to 2022 alone.
McMorris was one of several Republicans and hearing witnesses who referenced investigative reports that major nonprofit systems like Bon Secours Mercy Health have used the program to boost revenues with limited apparent benefit to underserved communities.
These critics also noted that the 340B statute doesn’t explicitly require providers to show how—or even if—their discounts are being funneled back into patient care, opening the door to a subset of bad actors who “buy low [and] sell high” at the expense of the public and payers.
“We in Congress, with our oversight authority, are mostly blind as to what happens with these dollars,” Subcommittee Chair Morgan Griffith, R-Virginia, said during his opening remarks.
Anthony DiGiorgio, a neurosurgeon at the Zuckerberg San Francisco Hospital, told lawmakers that the program’s current structure and statutory ambiguities are leading drugmakers to raise prices and introduce contract pharmacy restrictions that “are certainly understandable given the abuses of the program, but … have the unintended consequence of harming hospitals that truly need the discount.”
DiGiorgio—who is also a policy researcher affiliated with the University of California, San Francisco and the Mercatus Center, George Mason University’s free-market think tank—also noted that the 340B program’s current implementation places independent practices at a competitive disadvantage and incentivizes provider market consolidation. William Smith, Ph.D., a senior fellow at the Pioneer Institute, which also champions free-market policy research, highlighted cases in which uninsured or underinsured patients were required to pay more at the pharmacy for an expensive medication than what the hospital did with its discount.
Republican lawmakers were receptive of the critiques. Though they stressed a belief in the 340B program’s ultimate goals and acknowledged the role it plays in funding safety-net providers, they weren’t shy about highlighting “bad actors” within the program’s 50,000-plus covered entities.
“I am a supporter of the overall 340B program. There are many hospitals, including in my district, who are appropriately using the 340B dollars to keep their doors open and heavily rely on this program,” Griffith said. “Yet we see reports about entities taking advantage of the system. … This is the reverse Robin Hood. Steal from the poor to pay the rich.”
Democrats, meanwhile, were less eager to vilify the hospital industry or hamstring its access to savings.
Subcommittee Ranking Member Katherine Castor, D-Florida, suggested that the rising costs of specialty drugs and other recent financial headwinds, not profit seeking, have driven more providers to lean on the discount program.
“Critics will point to the growth of 340B as evidence that it is not working as intended,” she said. “But just because a program has grown is not evidence that it’s not working.”
Energy and Commerce Ranking Member Frank Pallone, D-New Jersey—who noted that Tuesday’s hearing lacked any witnesses from the pharmaceutical industry or the HRSA, which oversees 340B—worried that new restrictions to 340B wouldn’t save money but “would severely weaken” access to safety-net care.
“Significant cuts to 340B will clearly impede the ability of all you, 340B-covered entities, to provide the full range of services—or maybe not any services at all, is the bottom line,” he said. “So in any discussion of changing the criteria, we have to be careful to avoid any approaches that result in reducing patient access to providers.”
Democratic lawmakers also directed much of their questioning to the hearing’s provider witnesses, whom they asked to describe their use of the saved spending.
Matthew Perry, president and CEO of Genesis Healthcare System, said his Ohio-based organization saves about $56 million per year through the program. The organization brings in about $786 million of total patient service revenue and logged an operating margin of just $1.5 million in its most recent year (when it also received over $14 million of one-time COVID-19 grant money).
“340B is the difference between us operating a razor-thin positive margin or an unsustainable deficit,” he told Congress. “Without 340B savings, Genesis would not be able to continue to operate.”
Perry said his system reinvests all of the program’s savings back into patient care, specialized services and to discounted treatments. Though not required by statute, Genesis regularly reports how much it saves through the program, as do many other of the country’s large nonprofits, he said.
Sue Veer, president and CEO of Carolina Health Centers, a federally qualified health center (FQHC) in South Carolina, painted a similar picture. Though generally more willing to acknowledge the program and existing statute’s shortcomings than Perry, she said that the savings help her organization meet its goals as a FQHC and offer services that otherwise would go unfunded.
“We have a pretty robust behavioral health program—I would say 80% of the adult behavioral health services have no source of reimbursement,” she said. “We could not meet the expectations of a patient-centered primary care home where you’re looking at the whole person.”
Transparency, statutory clarifications top witness suggestions
Discussions on how the 340B program could be improved by lawmakers most frequently returned to the issue of transparency.
“We simply have no idea how much additional revenue that an individual hospital secures from the program, and the data on how hospitals spend this revenue is somewhat unreliable,” Smith told lawmakers. “Without knowing how much money hospitals are securing from the 340B program and without knowing exactly how they are spending that money, how can we judge the effectiveness of hospitals that are serving vulnerable communities and populations?”
DiGiorgio said that better insight into who is using the discounts and where they’re purchasing their drugs would help cripple entities abusing the program. Veer added that transparency metrics relating to the population providers are serving would also help give the public a better idea of which organizations are meeting Congress’ original goal of supporting the underserved.
Still, Veer and Perry gave ammunition to Democrats’ stance that providers shouldn’t face new restrictions on how they’re actually using the savings.
Genesis’ top executive told lawmakers that “340B works so well because … we can direct resources to where our patients need them most.” He noted that pitches limiting 340B discounts only to the drugs purchased to treat low-income or uninsured patients “would dramatically shrink 340B and devastate our hospital. It would likely put us out of business.”
Veer said that maintaining flexibility will be “equally” important to encouraging transparency, but that legislation introducing more clear-cut definitions could help appropriately direct the savings.
“I would not want to scale back the flexibility because, I agree, every community is different, and the needs of every community health center is different,” she said. “What I do think is we need to start with a fundamental threshold definition of what patient eligibility is, and that has to be linked to direct patient care provided by the covered entity.”
Calls for statutory clarifications, and in particular the aforementioned definition of an eligible patient, were a general consensus among the witnesses. Providing these would go a long way toward stemming legal battles and “devastating” restrictions, witnesses told lawmakers.
DiGiorgio went further, urging lawmakers to consider increasing the “arbitrary” disproportionate share hospital calculations used to determine hospital eligibility beyond the current 60% and to consider including outpatient services in the same calculation. These moves would help ensure the discounts are going to providers in greatest need and reduce the incentive for hospitals to funnel patients toward pricey inpatient care.
He also encouraged lawmakers to consider the more ambitious realignment of the program’s benefit qualification away from provider entities. Rather, it would be more appropriate for the savings to trigger based on whether the patient being served is disadvantaged, which witnesses noted would negate any potential abuses that occur when providers or their contract pharmacies span multiple geographic areas.
Though it would be more difficult to implement, such a patient-focused approach struck a chord with the lawmakers.
“It sounds like … the right patients need to get this benefit. I’d like to explore more … how complicated it would be to really get that benefit to follow the patient,” Scott Peters, D-California, said. “That’s obviously in theory the way that it would work best. But if we don’t define some of this stuff that’s out there and we know is undefined, we’re not doing our job. I look forward to working with everybody to get this right.”