Affluent hospitals are ginning up hundreds of millions of dollars in ill-gotten gains every year by exploiting a federal health care program intended to help poor and vulnerable Americans.
That’s the conclusion of a report from the inspector general at the federal Department of Health and Human Services. The hospitals are taking advantage of a program called 340B, which requires pharmaceutical companies to supply discounted drugs to health care facilities serving low-income patients.
The crux of the problem is 340B’s lax eligibility requirements. Many participating hospitals and pharmacies don’t treat a significant number of underprivileged or uninsured patients.
Hospitals and pharmacies are essentially using the program as an arbitrage opportunity buying drugs at a discount, selling them at full price to insured and affluent customers, and pocketing the difference. Meanwhile, the poor Americans for whom those discounted meds are intended are left out in the cold.
Recent expansions of 340B have only exacerbated these abuses.
In 1996, federal officials expanded the kinds of entities that could participate in the program to include pharmacies. The 2009 stimulus legislation, the health care reform law known as ObamaCare and several recent administrative actions have further expanded the pool of providers that could gain access to program discounts.
And a 2010 reform allowed hospitals to contract with an unlimited number of outside pharmacies to dispense drugs through the program.
Predictably, participation in the program has skyrocketed. Between 2005 and 2013, the number of 340B hospitals and pharmacies increased by a whopping 183%. Meanwhile, contract-pharmacy arrangements have exploded by nearly 700%.
Right now, more than 30,000 pharmacies are able to purchase drugs at 340B prices. One-third of all American hospitals participate. Without reform, this exponential growth will continue.
Such unchecked expansion wouldn’t be so bad if hospitals and pharmacies were actually passing their sizable savings onto low-income customers in the form of lower drug prices. But there’s no legal requirement forcing them to do it, so many don’t.
As Sen. Charles Grassley, R-Iowa, wrote, the program’s fundamental goal of serving the truly needy is undermined “because hospitals . .. can elect to sell all of their 340B drugs to only fully insured patients while not passing any of the deeply discounted prices to the most vulnerable, the uninsured.”
A real-life example? An investigation conducted by the Raleigh, N.C.-based News & Observer newspaper found that several large local hospitals were seriously abusing 340B by selling chemotherapy drugs discounted by 20% to 50% at up to 10 times the cost.
Meanwhile, the uninsured 340B’s intended beneficiaries often end up paying full price for their meds.
Many pharmacies don’t offer the discounted price to low-income patients at all. And thanks to ObamaCare, more and more hospitals are scaling back financial-assistance programs, hoping to push low-income, uninsured Americans onto the new health exchanges.
Fortunately, a group of congressional lawmakers is now calling to curb the abuses detailed in the inspector general’s report. More lawmakers should join them.
They should halt the exploitation of 340B and ensure that it achieves its original, noble purpose of expanding access to affordable drugs for low-income patients.
Pipes is president, CEO and Taube Fellow in Health Care Studies at the Pacific Research Institute. Her latest book is “The Cure for Obamacare” (Encounter, 2013).
