House lawmakers recently introduced legislation to fix one of the largest and most important prescription drug programs in the country — one that was created with good intentions but has since gone off the rails. The ongoing, flagrant abuse of the program is hurting the poorest Americans, while also costing taxpayers tens of billions of dollars.
Congress enacted the 340B Drug Pricing Program in 1992 with the goal of helping poor patients obtain cheaper medicines.
The idea was simple enough. The program requires drug manufacturers to offer steep discounts to nonprofit hospitals and other medical facilities that serve lots of low-income patients.
Lawmakers figured that qualifying hospitals could then use the savings to provide more free or heavily discounted care to poor patients.
But the program — like so many other government initiatives — was poorly designed, even though lawmakers meant well.
The program doesn't actually require hospitals or other enrolled entities to use the savings for charity care. Instead, they can purchase the discounted drugs and resell them to middle- and upper-class patients with private health insurance.
In fact, 85% of "disproportionate share" hospitals — that is, hospitals serving a high percentage of low-income patients — report making more money from 340B than they provided in charity care.
In 2022, researchers found that such hospitals and their affiliates made roughly $44 billion from 340B. Those hospitals reported just $18.5 billion in charity-care spending the same year.
In other words, Congress created a program that gives a financial windfall to hospitals, assuming hospitals would pass it along to patients. But hospitals and other entities are keeping most of the money for themselves.
Worse, the program has few safeguards to prevent hospitals, clinics, and pharmacies in affluent areas from signing up. Once a hospital qualifies for the program, all its pharmacy affiliates can buy at the discounted price.
The share of 340B-contracted pharmacies in primarily Black and Latino neighborhoods declined from 2011 to 2019. Meanwhile, 340B-contracted pharmacies in the highest income neighborhoods grew during that period.
The New York Times reported that nonprofit hospital chain Bon Secours Mercy Health allegedly pocketed millions from its 340B eligible hospital, Richmond Community, in 2022. Investigators found that the hospital, which was supposedly helping low-income residents in Richmond, Virginia, recorded a profit margin of 44% in 2020 alone.
That margin was the highest in the state and coincided with the chain gutting hospital resources, including the building's intensive care unit.
In other words, 340B funds are not going toward expanding services, facilities, and prescription drug access to the poor people who Congress wanted to help.
The program keeps growing by leaps and bounds. Roughly two-thirds of the nation's hospitals participate today. As of 2022, total gross drug sales within the program surpassed $100 billion annually — nearly double total sales just four years before.
This might seem like a zero-sum fight between hospitals and their affiliates on one side and drug companies on the other. But the program has grown so large that it's shaping and distorting the entire healthcare system — and hurting taxpayers.
A Columbia researcher recently concluded that "the increase in 340B hospital and grantee participation from 2014 to 2021 increased overall Medicaid spending by $391 per enrollee, or over $32 billion per year. This suggests that 340B-driven spending may account for roughly 10% of overall Medicaid spending, significantly increasing the cost of the program to taxpayers."
Sensible reforms to the 340B program can't come soon enough.
Lawmakers could start by creating and enforcing stricter requirements for hospitals to become and remain 340B-eligible. This includes verifying that participating hospitals and clinics are located in medically underserved areas, including rural and low-income communities.
Congress could also provide specific mandates on how hospitals can use proceeds from the sale of 340B-discounted drugs. Part of this mandate could be ensuring hospitals provide significant levels of charity care to vulnerable patient populations in the form of lower out-of-pocket drug costs, establishing community health education programs, or making more hospital beds available.
Fortunately, House lawmakers have opened the debate over reforms like these in the newly introduced 340B ACCESS Act. Democrats and Republicans should use that bill as a launchpad for meaningful discussions about long-term fixes to hold hospitals accountable and ensure the program helps low-income patients as intended.
Drew Johnson is the Republican nominee for Congress in Nevada's 3rd Congressional District. He is a government watchdog columnist who has researched health and budget policy issues at several leading free market think tanks. Read Drew Johnson's Reports — More Here.
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