Sen. Bill Cassidy pictured at a hearing
Sen. Bill Cassidy (R-La.) asked a witness during a hearing if she was open to 340B reforms to ensure that 340B savings “are not going to build a chandelier in a hospital et cetera.”

News Alert

340B Raised Often During Senate Hearing on Community Health Centers

The 340B program—and whether it needs change, protection, or both—came up often today during a U.S. Senate hearing on federal funding of community health centers.

The bulk of health centers’ federal grant funding—about $5.8 billion annually from the U.S. Health Resources and Services Administration’s Community Health Center Fund—will expire if not reauthorized by Sept. 30. This morning’s Health, Education, Labor, and Pensions Committee hearing focused mostly on the fund and other health center funding streams. Health centers’ 340B revenues, drug manufacturer and pharmacy benefit manager threats to those savings, and health centers’ uniqueness among 340B covered entities were part of the conversation.

The hearing came a day after reports that the National Association of Community Health Centers and Pharmaceutical Research and Manufacturers of America have been developing 340B reforms to propose jointly to Congress. Health centers want to end drug manufacturer denials of 340B pricing involving contract pharmacies. They also want relief from PBM and state Medicaid agency encroachment on their 340B savings. PhRMA wants restraints on hospital use of the 340B program.

“A chandelier in a hospital”

No one brought up the reported NACHC­–PhRMA talks at the hearing. Committee ranking Republican Bill Cassidy (La.) did, however, ask one health center witness if she was open to 340B reforms to make sure 340B savings “are not going to build a chandelier in a hospital et cetera.” Cassidy, a gastroenterologist, is a long-time critic of 340B hospitals.

“It sounds like you are using the 340B program the way the 340B program is supposed to be used,” Cassidy told Sue Veer, president and CEO of Carolina Health Centers in South Carolina and NACHC board of directors secretary. “There are a lot of abuses of that program but it does seem as if you are using it correctly.”

“I think we are there,” Veer replied. “I think we need to look at that.”

“I do think there are abuses but unfortunately the abuses get much more highlighted than the many, many thousands of organizations that do this right,” Veer said. Her health center uses 340B “only for patients of the health center and only for prescriptions that emanate from our health center site,” she said. “That revenue is managed very carefully to ensure it is allocated to our operating margin…. Services that operate at a deficit are made whole by the contribution of our pharmacy margin.”

Cassidy announced yesterday that he has asked the Government Accountability Office for a comprehensive study of health center funding “to understand the health of the program and ensure proper stewardship of American taxpayer dollars.”

“I think as much as $18 million out of your total $44 million budget seems to come, in terms of revenue, from 340B,” Cassidy said to Veer.

“It comes from our pharmacy services, a portion of which is 340B,” Veer answered.

“And what portion of that would be 340B?” Cassidy said.

“I apologize senator, I didn’t have time to actually carve out those numbers,” she said.

“That’s OK,” Cassidy said. “Looking at your patient population, it’s going to be a substantial portion,” Cassidy said.

“It’s going to be at least 60%,” Veer said.

Cassidy next asked witness Jessica Farb, U.S. Government Accountability Office managing director of health care, if when he asked earlier if 340B revenue was included in GAO’s breakout of health center revenue for 2017 “and you were kind of nodding your head no, do you have any comments on that?”

“Yes, senator,” Farb answered. “The 340B program, given the way it works, entities are able to get discounted drugs, and then they are able to submit claims for those drugs at the price a payer would pay, the funding shows up in Medicare, Medicaid, and private insurance, that is where those revenues will show up.”

Cassidy next asked if health centers, “when it comes to Medicare and Medicaid, get an extra rate relative to the guy who is just practicing next door.”

“Right, they have an enhanced [prospective payment system],” Farb answered.

 “What is the degree of that enhancement?” Cassidy asked.

“Ooh,” Farb said. “Off the top of my head I can’t answer that question.”

Advocates for Community Health CEO Amanda Pears Kelly interjected, “I can’t give you the specifics … but I can tell you it doesn’t cover the total cost.”

“I accept that,” Cassidy said. “I’m just trying to figure out, as we put together a business plan—somebody told me it’s the lesser of 80% of what you charge, and you can kind of pick the charge or the PPS number, the lesser of those two…”

“I think it’s a bit of a complicated picture,” said Ben Harvey, CEO of the Indiana Primary Health Care Association. “It varies by state Medicaid programs. And as Amanda mentioned, sometimes in certain places it will cover the total cost, but because of the global nature of what health centers provide, you’re asked to do more…”

“I get that,” Cassidy said. “We’re just talking about a business model.”

“Shav[ing] off savings”

Sen. Roger Marshall (R-Kan.), an obstetrician, asked Veer to explain how PBMs “have found a way to make money off the 340B program” by “shav[ing] off savings that Congress intended to go to the safety net providers to support vulnerable patient populations.”

Veer answered that, when drug manufacturers demand contract pharmacy claims data in exchange for 340B pricing at contract pharmacies, they use the data to deny PBMs rebates on drugs upon which they gave a 340B discount. The claims data “becomes transparent to the PBMs,” she continued. The PBMs then use the data “to recoup the rebates they lost by reimbursing 340B pharmacies less than they would a retail pharmacy.”

“It’s a dramatic reduction in reimbursement that often, when you add fees on top, it is below cost,” Veer said.

“Mister Chairman,” Marshall said to Sen. Bernie Sanders (I-Vt.), “I hope the staff is taking note of this because it is an issue for a separate hearing.”

“What is unique?”

Sen. Tammy Baldwin (D-Wis.) said, “I have been a long-time supporter of 340B and have serious concerns about how the actions of drug companies and PBMs have jeopardized this program.”

She Pears Kelly, “What is unique about community health centers that participate in the 340B program?”

“For starters, they invest every single dollar back into patient access and community. We can verify that,” Pears Kelly answered. “I can’t speak to other entities, but I can say that data exists…to verify that.” She said health centers use 340B “accurately and properly” per its intention and design. Pears Kelly’s group of 30 mainly large health centers is calling on Congress to create a separate drug discount program called 340C open to health centers and perhaps rural hospitals and other federal grantees.

Veer chimed in: “One other distinguishing characteristic is, we are required to provide services regardless of ability to pay, which means we are required to provide affordable medicine at a discount.”

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