Members of the Senate Health, Education, Labor, and Pensions Committee held a hearing in October to discuss a federal healthcare policy long overdue for reform — the 340B Drug Pricing Program.
Created to expand access to affordable medicines for low-income people, 340B has since fallen victim to rampant abuse by hospitals.
The result has been massive and unsustainable growth in the program — and little help for patients in need.
As Republicans formulate their end-of-year legislative agenda, they need to make cleaning up 340B a top priority.
The program requires drug manufacturers to sell medicines at a steep discount to hospitals that ostensibly serve low-income communities.
These "covered entities," as they're known, then sell those meds at a significant mark-up to public and private insurers.
They pocket the difference, with the idea that they'll use the money to improve access to care for vulnerable patients.
But they're not required to spend their 340B profits on patients. And many don't. A recent investigation led by HELP Committee Chair Sen. Dr. Bill Cassidy, R-La., looked at a number of covered entities, including the massive tax-exempt Cleveland Clinic and Bon Secours Mercy Health hospital systems, which it concluded "do not pass 340B discounts directly to their patients."
Instead, hospitals have embraced 340B as a profit center. Over the years, a growing number of hospitals and clinics — including many that don't serve primarily low-income populations — have gotten in on the action.
The result has been a staggering increase in the number of 340B providers.
Whereas only around 50 hospitals participated in the program during its first year, today that number exceeds 2,600. Between 2013 and 2023, the number of covered entities doubled, according to testimony from Michelle B. Rosenberg of the Government Accountability Office (GAO) at the HELP Committee hearing last month.
Spending, understandably, has also ballooned — from $6.6 billion in 2010 to $43.9 billion in 2021, according to the Congressional Budget Office's Aditi Sen.
Separate research from former CBO Director Dan Crippen pegged the value of 340B discounts at $70 billion in 2023. That's revenue that pharmaceutical companies don't take in — and thus don't pay taxes on.
Crippen estimates that the federal government will lose out on $200 billion in tax revenue over the next decade because of these 340B discounts.
What makes the growth of 340B particularly troubling is mounting evidence that most covered entities fail to meet its basic requirements — including the requirement that these facilities provide care to mostly low-income and underserved communities.
The GAO has warned about lax oversight of 340B for years. A 2019 assessment, for instance, found that the processes used by federal auditors "to assess the eligibility of participating nongovernmental hospitals did not provide reasonable assurance that these hospitals met eligibility requirements."
This lack of enforcement has allowed even hospitals serving affluent communities to use the program as a revenue-generator.
According to a 2023 analysis, only 35% of 340B hospitals were in medically underserved areas. An earlier study found that nearly two-thirds of hospitals benefiting from the program provide less charity care as a share of their operating costs than the average for all hospitals.
Making matters worse, the program has accelerated consolidation within the healthcare market. Every clinic and healthcare facility a 340B hospital buys up is another covered entity that can buy discounted drugs and sell them at huge mark-ups.
This consolidation reduces competition and patient choice.
The upshot is higher costs and lower-quality care.
In short, a program that was created to help providers in struggling areas better serve low-income patients has metastasized into a wildly expensive welfare program for relatively well-off hospitals.
If Republicans are looking for ways to rein in costs and restore integrity to the health sector as part of their end-of-year package, they'd do well to set their sights on 340B.
Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is "The World's Medicine Chest: How America Achieved Pharmaceutical Supremacy — and How to Keep It." Follow her on X @sallypipes. Read more of Sally Pipes' reports — here.
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