Dear Chairman Cassidy:

Thank you for the opportunity to comment on the 340B Drug Pricing Integrity and Affordability for Patients Act. The discussion draft represents an important effort to provide greater statutory clarity, transparency, and accountability to a program that has grown substantially in size. As the Director of Health Care Policy at the American Action Forum, I support policies that increase access to innovative medicines for patients. Policies that promote such access are largely underpinned by free market principles and competition-based economics. Unfortunately, participating entities are often governed by mechanisms that don’t follow these economics and thus do not respond to usual market conditions.

There is a strong need for congressional action in reforming the 340B program. According to the Health Resources and Services Administration (HRSA), covered entities purchased approximately $100 billion in outpatient drugs through the 340B Drug Pricing Program in 2025, up from $53.7 billion in 2022 – an increase of approximately 86 percent in only three years. Disproportionate share hospitals alone accounted for more than $79 billion of 2025 purchases.  Growth does not demonstrate abuse, however. HRSA notes that increased outpatient utilization, specialty-drug spending, and pharmaceutical innovation contribute to the trend. Yet a program operating at this scale should no longer depend on statutory ambiguities, fragmented agency guidance, and litigation to determine basic operating rules; instead, the 340B program should depend on transparent accounting measures that promote certainty and accountability.

Accordingly, reform should be guided by several principles. Congress should provide certainty where the existing statute is ambiguous; require sufficient transparency to determine whether the program is achieving its objectives; impose meaningful accountability on covered entities and intermediaries; and preserve legitimate patient access. Just as important, reform should simplify administrative complexity wherever possible. Congress should be reluctant to replace existing uncertainty with additional layers of compliance requirements or multiple competing systems.

340B Should Be Reformed With Its Original Purpose in Mind

Any effort to reform 340B should begin with an understanding of why the program exists. Congress did not create 340B as a freestanding approach to pharmaceutical affordability. Rather, the program was a legislative correction to an unintended consequence of the Medicaid Drug Rebate Program (MDRP).

The Omnibus Budget Reconciliation Act of 1990 established the MDRP and required manufacturers participating in Medicaid to provide rebates based, in part, on the lowest price – or “best price” – made available elsewhere in the market. The provision lowered Medicaid’s prescription drug costs, but it also changed manufacturers’ economics when providing deeply discounted drugs to safety-net providers. A sufficiently low price offered to one such provider could become the manufacturer’s Medicaid best price and consequently increase rebate obligations across a much larger volume of Medicaid utilization. Historical analysis has documented this: Some manufacturers increased prices to certain Department of Veterans Affairs, Department of Defense, and Public Health Service purchasers after the best-price requirement took effect.

Congress responded in the Veterans Health Care Act of 1992. The law excluded prices provided to specified government purchasers and covered entities from the Medicaid best-price calculation and simultaneously established what became the 340B Drug Pricing Program. Participation in Medicaid is linked to manufacturers’ 340B pricing obligations, while the 340B ceiling-price calculation itself draws on Medicaid drug-rebate concepts.

That history is relevant to today’s reform debate. 340B was, from its inception, an effort to reconcile two objectives sprung from a cause-and-effect policy process: obtaining favorable drug prices for Medicaid while preserving manufacturers’ ability to provide especially favorable pricing to safety-net providers without extending that same price across the Medicaid market.

Now, Congress should apply rigorous policy discipline to prevent another need for cause-and-effect corrections. The appropriate response to shortcomings in 340B is not simply to add another layer of rules to an already burdensome statutory structure. Reform should seek to understand how requirements interact across 340B, Medicaid rebates, Medicare drug payment, and newer federal pricing policies and then establish rules that minimize unintended consequences among them. The history of 340B itself is a reminder that well-intentioned drug-pricing policies can produce distortions elsewhere when those interactions are overlooked.

Discussion of Draft Legislative Sections

The discussion draft contains many reforms that generally move the program in the right direction. Some pursue appropriate objectives but would benefit from modification. Still others address legitimate concerns and operational modifications but should be considered after Congress and HRSA determine the future transactional structure of 340B. Unfortunately, the key reform needed – adjudication of an appropriate rebate model – is left unresolved. In fact, it risks further complicating the statute by creating multiple pathways that increase administrative burden in the system.

Below, each provision of the draft legislation is discussed in more detail.

Congress Should Establish a Coherent Transaction Model

Section 2 of the draft legislation attempts to resolve perhaps the most significant contemporary dispute in 340B: how manufacturers should effectuate the statutory ceiling price. Unfortunately, the text as drafted only furthers ambiguity. While flexibility has benefits, Section 2 risks institutionalizing duplicative administrative systems across a program already characterized by substantial operational complexity. This section should not be finalized in its current form.

Each model entails different inventory, claims submission, reconciliation, and oversight requirements. A covered entity purchasing drugs from numerous manufacturers could face different transaction mechanisms depending on the manufacturer and product. Pharmacies, third-party administrators, manufacturers, and covered entities would consequently need systems capable of administering upfront discounts, retrospective claims, rebate disputes, segregated inventory requirements, and a federal claims repository simultaneously.

That approach cuts against one of the principal reasons Congress should legislate in this area. Statutory reform should disencumber program participants from uncertainty and unnecessary administrative friction, not formalize several competing pathways that may increase both.

Importantly, Congress does not need to resolve the discount-versus-rebate question without evidence. HRSA announced a revised 340B Rebate Model Pilot Program on July 31, 2026, following a request for information that generated more than 2,400 stakeholder comments (including my own statement of support). HRSA specifically intends for the pilot to test transaction-level verification, duplicate-discount prevention, claims transparency, and interactions with the Medicare Drug Price Negotiation Program.

The empirical information produced through that pilot should inform 340B reform legislation. Congress should establish a presumptive, standardized transaction architecture after assessing the pilot’s results and permit deviations only where they solve a demonstrated operational problem. A uniform, post-purchase rebate system is likely to prove superior; an upfront discount system may remain preferable; or experience may demonstrate that a centrally administered claims architecture provides the best combination of integrity and efficiency. What Congress should avoid is requiring the health care system to maintain all three indefinitely before the relative advantages and disadvantages have been adequately tested.

Clear Eligibility Standards Strengthen the Program

Sections 3 and 4 are constructive reforms that should be relatively noncontroversial and thus can generally be retained.

Requiring subgrantees to provide documentation verifying the grant qualifying their eligibility, their public or nonprofit status, and certifications concerning the use of 340B revenue and the populations served are consistent with a basic principle of federal program administration. As outlined in Section 3, this language would move strongly in the right direction. An entity receiving a substantial statutory benefit should be capable of demonstrating that it meets the conditions Congress established for receiving it.

Section 4 similarly provides welcome certainty by placing a definition of “patient” into statute, including requirements concerning a covered entity’s relationship with the individual, an auditable medical record, and the relationship between the relevant outpatient service and prescription. While many stakeholders may debate the length of relationship to be considered a “patient,” relationships longer than one year should be the minimum. For too long, important questions of 340B eligibility have rested on administrative interpretation rather than sufficiently detailed statutory direction. Clear definitions benefit manufacturers and covered entities alike. Compliance should depend on ascertainable rules, not on predicting how an agency or court may interpret broadly worded statutory provisions years after a transaction occurs.

Contract Pharmacy Reform Should Protect Both Integrity and Access

Contract pharmacies have become a substantial component of 340B, but their expansion has also created program integrity concerns. Section 5 takes an important step by expressly recognizing the use of contract pharmacies while establishing statutory requirements for their operation. Congress should retain that basic structure, though some modifications should be made.

The Government Accountability Office (GAO) found that the number of pharmacies contracting with 340B entities increased from roughly 1,300 in 2010 to nearly 20,000 in 2017. It also identified weaknesses in oversight of duplicate discounts and other compliance requirements. At the same time, contract pharmacies can expand the locations at which patients obtain medications, particularly where a covered entity lacks its own pharmacy.

The discussion draft appropriately attempts to reconcile those competing considerations, but some restrictions risk becoming overly blunt proxies for program integrity. Most notably, the draft generally limits certain hospital covered entities to five contract pharmacies and requires pharmacies to fall within a statutorily defined service area, subject to specified exceptions.

Congress should not enact these restrictions. Americans increasingly receive health care across traditional geographic boundaries. Specialty pharmacies, mail-order dispensing, regional health systems, telehealth, and routine travel can separate the location of a patient’s provider from the location at which a prescription is filled. A rigid geographic test may therefore exclude otherwise legitimate patient-pharmacy relationships without necessarily improving compliance.

Similarly, the number of pharmacies alone is an imperfect measure of program integrity. Five carefully monitored pharmacies can produce compliance problems; a larger network operating under effective controls may not. Congress should therefore consider replacing rigid numerical and geographic limitations with standards more directly connected to patient access and compliance risk. This would preserve Section 5’s valuable registration, contracting, and oversight provisions while reducing the risk that an effort to address documented abuses inadvertently makes medications more difficult for legitimate patients to obtain.

Patient Benefit Requires Both Direct Affordability and Financial Transparency

Section 6’s expanded reporting requirements are among the strongest provisions in the discussion draft. Increased transparency is consistent with broader bipartisan efforts to make health care pricing and financial relationships more visible, and it is particularly important in 340B because policymakers currently lack sufficient data to evaluate how program benefits are generated and used. GAO has repeatedly identified gaps in federal oversight of 340B eligibility and compliance. In one review of non-governmental hospitals, GAO found that HRSA reviewed contract documentation for fewer than 10 percent of participating non-governmental hospitals annually in 2017 and 2018, and GAO identified hospitals whose documentation did not satisfy relevant eligibility requirements.

As Chairman, your own investigations further illustrate the value of reporting. The HELP Committee reported examples of hospitals generating hundreds of millions of dollars in 340B revenue without directly passing discounts to patients or accounting for the specific expenditures financed by those revenues. The investigation also identified substantial and complex payments flowing to contract pharmacies and third-party administrators.

Better reporting will not by itself resolve every disagreement over the program, but it will improve the quality of future policymaking. Congress should not be required to legislate based principally on competing claims from manufacturers and covered entities when standardized financial information can provide a more empirical basis for evaluating the program.

Section 7 likewise moves in a productive direction by requiring hospitals to provide qualifying patients with direct reductions in their out-of-pocket obligations. GAO’s earlier review of 55 covered entities found that only 30 reported offering low-income, uninsured patients discounts through at least some contract pharmacies, and only 23 reported passing through the full 340B discount. While that sample was not designed to be nationally representative, it illustrates why Congress has reason to ask whether the statutory discount reliably reaches patients at the pharmacy counter.

Direct patient savings are welcomed. But Congress should not mistake point-of-sale discounts for a comprehensive measure of whether 340B resources are being used effectively. The economic benefit generated through 340B can substantially exceed the amount necessary to provide the patient discounts contemplated by Section 7. A hospital’s compliance with the sliding fee scale does not answer whether the remaining 340B margins finance charity care, medication access, community services, capital expenditures, or activities that bear little relationship to the populations the program is intended to support.

Patients should receive demonstrable affordability benefits, while covered entities should also provide sufficient information to allow policymakers to evaluate how remaining program resources are used. Sections 6 and 7 can function complementarily and should be developed and finalized together with some modifications. Patient benefit should be proven rather than presumed, but no single form of patient benefit should serve as a substitute for broader accountability.

Child Site Eligibility Should Reflect Actual Safety Net Activity

As health systems acquire and integrate additional outpatient facilities, eligibility for a program explicitly intended to support safety-net care should reflect more than corporate affiliation. A facility receiving 340B benefits should be capable of demonstrating that it meets uniform statutory requirements and performs the activities Congress intended to support. The draft would require hospital child sites to satisfy common standards related to ownership, Medicare cost reporting, provider-based status, outpatient services, and other criteria before participating independently in 340B.

This is why section 8 of the legislation is another significant improvement over the current system. More consistent child-site standards would improve accountability while reducing opportunities to structure ownership arrangements primarily around expansion of 340B eligibility. Congress should retain this section while ensuring HRSA has sufficient implementation flexibility to address unusual circumstances involving legitimate safety-net providers.

Standardized Intermediary Compensation Would Ameliorate Disincentives

Section 9 appropriately seeks to standardize compensation for third-party administrators (TPA) and contract pharmacies. The proposal generally requires TPA compensation to take the form of a flat dollar amount unrelated to the price or discount associated with a drug and requires contract-pharmacy fees to be structured similarly and remain within specified bounds.

There is empirical support for addressing these financial relationships. GAO’s review of contract-pharmacy agreements found that most included flat dispensing fees, generally between $6 and $15 per prescription, but some arrangements compensated pharmacies based on a percentage of prescription revenue. More recently, your investigation found complex fee structures and reported that fees charged by major contract-pharmacy and TPA participants generally increased over time.

Intermediaries should be compensated for legitimate services, but compensation that rises with the value of a drug or the size of the 340B spread can create incentives unrelated to the cost of providing those services. Flat, fair-market-value payments more clearly separate compensation for administration and dispensing from the economic value generated by the statutory discount. Greater uniformity should also make contracts easier to compare, audit, and enforce.

Section 9 should therefore be retained without significant amendment.

Prime Vendor Reform Should Follow Resolution of the Transaction Model

The Prime Vendor Program merits scrutiny, and the discussion draft identifies legitimate issues concerning competition and conflicts of interest. Requiring multiple vendors may ultimately improve the program. Nevertheless, Congress should defer structural changes to the Prime Vendor Program until the more fundamental question raised by Section 2 – the overarching design of the program – has been resolved.

The draft would require the Secretary to contract with at least two separate prime vendors and begin soliciting a second vendor within one year of enactment. At present, the Prime Vendor Program performs functions within a system built predominantly around upfront purchasing arrangements. HRSA also relies on Prime Vendor Program data to measure 340B purchases; HRSA notes that those data capture the vast majority, but not all, 340B transactions.

A significant transition toward retrospective rebates or a federally operated claims repository could alter which functions a prime vendor needs to perform, how data flow through the program, and what services covered entities require. Congress should avoid redesigning the infrastructure supporting today’s 340B model while simultaneously leaving tomorrow’s model unsettled.

The appropriate sequence should therefore be to determine whether 340B will operate principally through upfront discounts, retrospective rebates, a centralized claims process, or another standardized architecture; evaluate the functions necessary to support that architecture; and only then determine how the Prime Vendor Program should be structured. Any reform should be done after its future role is known.

Congress Should Give HRSA the Authority to Administer the Program Congress Designs

The final sections provide important administrative foundations for broader reform. Section 11 would direct civil monetary penalties collected under the program to HRSA’s Office of Pharmacy Affairs, while Section 12 expressly authorizes the Secretary to issue regulations and guidance implementing the amended statute.

The need for clearer statutory authority is well documented. GAO has noted that HRSA has requested additional regulatory authority for the 340B Program over many years and that the absence of explicit authority has limited the agency’s ability to implement certain oversight recommendations, including those related to contract pharmacies and duplicate discounts.

Congress should decide the program’s fundamental policy questions, including eligibility, patient definitions, contract-pharmacy authority, and the basic mechanism through which the 340B ceiling price is effectuated. Once those choices are made, however, HRSA needs sufficient authority to administer the resulting program, address technical issues, and adapt implementation as health care delivery evolves. Explicit regulatory authority would reduce the need for major program rules to emerge indirectly through informal guidance and litigation.

Congress Should Consider Moving Administration of 340B to CMS

As Congress seeks to substantively modernize the rules governing 340B, it should also reconsider whether HRSA remains the appropriate agency to administer the program. A reformed 340B Program would be better housed within the Centers for Medicare & Medicaid Services (CMS), with an appropriately structured office responsible for preserving the program’s mission.

This recommendation follows in significant part from 340B’s underlying mechanics. The program is inseparable from the MDRP, which CMS already administers. Manufacturers generally must participate in both programs for their outpatient drugs to receive Medicaid coverage; 340B discounts and Medicaid rebates cannot both apply to the same drug transaction; and the prevention of these duplicate discounts requires continuing coordination between HRSA, CMS, state Medicaid programs, covered entities, and manufacturers. The 340B ceiling price infrastructure itself also relies on information supplied by CMS, among other sources.

The division of responsibility has produced tangible administrative difficulties. GAO has repeatedly identified weaknesses at the intersection of 340B and Medicaid rebates, finding that existing oversight has not provided reasonable assurance that manufacturers are protected against duplicate discounts. Its recommendations have consequently required coordination between two Department of Health and Human Services (HHS) agencies: CMS overseeing state Medicaid rebate practices on one side and HRSA overseeing covered entities on the other. HHS’s Office of Inspector General has similarly found that claim-level identification can improve the accuracy of determining which prescriptions are subject to 340B discounts and which remain eligible for Medicaid rebates. Consolidating federal responsibility would not automatically resolve those issues, but it could eliminate an unnecessary institutional seam in a policy area that relies on closely monitored, accurate claims.

The case for consolidation has become stronger as federal pharmaceutical policy has evolved. CMS now administers not only the MDRP but Medicare Part B drug payment systems, the Part D benefit, and the Medicare Drug Price Negotiation Program. The latter increasingly requires CMS to operate claims-based infrastructure involving manufacturers, pharmacies, providers, negotiated prices, and transaction-level payment effectuation. If Congress ultimately moves 340B toward a standardized claims-based rebate or other transaction model, the similarities in the administrative capabilities required by these programs will become more pronounced.

Moving 340B to CMS should not mean subordinating its safety-net purpose to Medicare or Medicaid payment policy. Congress should simply move the dedicated 340B office from HRSA to CMS – along with the appropriate HRSA personnel and institutional expertise – and require consultation with HRSA regarding the federal grantee programs whose participation gives 340B its distinctive public-health role. The objective should be administrative consolidation, not a change in which providers Congress determines should qualify for the program.

Conclusion

The 340B Program has changed dramatically since Congress created it in 1992. A program through which covered entities now purchase approximately $100 billion in outpatient drugs annually warrants a statutory framework commensurate with its scale. Congress should therefore examine reforms that would provide greater transparency, clearer eligibility requirements, more consistent oversight, and a stronger connection between the program and the patients it is intended to benefit.

The discussion draft provides a strong foundation for that effort, particularly in its provisions concerning eligibility, definitions, transparency, child sites, intermediary compensation, and HRSA authority. But successful reform should simplify 340B as it strengthens it. The strongest provisions of the discussion draft turn ambiguity into clear rules. The final legislation should apply that same principle throughout: provide certainty, demand accountability, preserve legitimate patient access, and avoid creating administrative complexity where a simpler and more uniform framework can achieve the same objective.

Accordingly, the committee should substantially revise Section 2 to avoid establishing several parallel transaction systems; preserve the contract-pharmacy reforms in Section 5 while replacing unnecessarily rigid geographic and numerical restrictions with standards more closely connected to access and compliance; strengthen the relationship between Sections 6 and 7 so that direct patient discounts complement rather than substitute for broader accountability over the use of 340B resources; and defer the structural changes contemplated in Section 10 until policymakers have determined the future mechanics of the 340B transaction itself.

Thank you for your consideration of these comments. I would be happy to work with you and other Members of Congress on reforms that advance competition, affordability, and accountability in the 340B program.