Hospitals Turn a Safety-Net Program Into an ATM

Washington, D.C. is finally taking a hard look at one of the most abuse-ridden federal health programs — the 340B Drug Pricing Program.

Last week, the Trump administration released a request for information exploring ways to bring more transparency and accountability to the program.

It's about time.

Congress created 340B to help safety-net hospitals stretch scarce resources. Drug manufacturers are required to sell medicines to participating hospitals at steep discounts — nearly 60% off list price according to one analysis — with the expectation that hospitals would use the savings to expand care for low-income and uninsured patients.

But the law does not require hospitals to pass those discounts on to patients.

Instead, many hospitals buy drugs at the discounted 340B price, bill insurers — including Medicare and private plans — at full price, and pocket the difference.

The program's growth has been staggering.

The Commonwealth Fund estimates that more than 53,000 sites benefit from 340B discounts, up from 1,000 at the program's inception in 1992.

Many of those hospital sites look nothing like traditional safety-net providers. According to one analysis, 69% of 340B hospitals provide below-average levels of charity care.

The program has been lucrative for hospitals.

A report from North Carolina's State Treasurer found that certain hospitals billed the state health plan for 340B drugs at a rate 5.4 times higher than what they paid after discounts.

A Senate investigation led by Health, Education, Labor, and Pensions Committee Chairman Sen. Bill Cassidy, R-La., a doctor, found that Bon Secours Richmond Community Hospital in Virginia received more than $276 million in 340B revenue between 2018 and 2023.

That same facility, the report notes, "also generated $44.4 million in revenue from self-administered 340B drugs."

What are hospitals doing with all that money?

In many cases, they're investing it for their own financial gain.

A study published by Magnolia Market Access comparing hospitals both before and after joining 340B found that "the additional dollars from the program were not used to increase rates of uncompensated care, increase spending on additional patient services, or employ more full-time employees."

Instead, these covered entities "doubled the amount of dollars directed towards their financial portfolios and investments (e.g., stocks, bonds, and other financial instruments) . . . "

Manufacturers are the ones who must absorb these growing discounts.

And every dollar diverted in 340B's expanding footprint is one that is not available to fund future biomedical research and development.

Patients ultimately pay the price — in the form of fewer groundbreaking treatments and therapies.

This week's request for information suggests that the federal government might finally be ready to tackle 340B reform.

One way forward is to replace the upfront discounts with post-sale rebates.

This change would help ensure that the facilities receiving discounts are actually adhering to the program's rules.

Rebates would also help reduce duplicate discounts within the program, which are estimated to be as much as $1.6 billion a year.

More aggressive oversight is also necessary. In 2024, the federal Health Resources and Services Administration audited just 0.33% of 340B facilities — hardly enough to ensure program integrity.

Eligibility for 340B must also be tightened.

Hospitals providing little charity care should not qualify for a program intended for safety-net providers.

And participating institutions should be required to demonstrate how they are using 340B savings to improve care for low-income and uninsured patients.

The 340B program was created to help the vulnerable.

Today, it too often enriches hospital systems instead. Reform is long overdue.

Sally C. Pipes is President, CEO, and Thomas W. Smith Fellow in Healthcare 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 Sally Pipes Insider articles — Click Here Now.