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Hospitals Manipulate Drug Program for Poor – Pacific Research Institute

Hospitals Manipulate Drug Program for Poor

Health insurance costs are set to jump dramatically. A new report from the Centers for Medicare and Medicaid Services found that average premiums will rise nearly 7% in 2014 ?? and then continue to increase by at least 5% annually over the next decade.

The rising cost of insurance is putting a squeeze on American families. And this problem could get even worse if lawmakers don’t fix a little?known federal drug program called “340B.”

Created by Congress in 1992, 340B was originally intended to provide low?income people access to needed medications. This program allows hospitals, clinics, and other health care providers serving large numbers of poor and uninsured patients to buy drugs at a deep discount.

The idea was that these facilities would pass along those savings to their patients.
But 340B is not working as intended. Instead, it’s being manipulated by hospital systems to increase profits. It isn’t helping the poor. And this exploitation is driving up health insurance costs for all Americans.

Price Disparity

The program’s major flaw is it doesn’t actually require health care providers to pass along those drug discounts to low?income patients.

Participating facilities are free to buy huge volumes of cheap medicines and then sell them at full price to insured patients ?? and pocket the difference.

That’s exactly what many participants are doing. Duke University Hospital has accumulated $280 million in profits from 340B over the last five years. The drug chain Walgreens is projected to make a quarter of a billion dollars off the program over the next half decade.

Established hospital systems have increased their revenue from 340B by buying up specialty clinics. These smaller practices often use a high volume of expensive drugs.

By acquiring these clinics, hospitals can purchase even more discounted medicines through 340B and further boost profits.

In 2012, hospitals enrolled more clinics in 340B than in the previous 20 years combined. A new University of Chicago study shows that most of these clinics are located in relatively affluent areas.

In other words, they aren’t even pretending to serve the low?income and uninsured populations 340B was intended to help.

Unfortunately, lawmakers have not responded to these abuses by fixing 340B’s structural flaw.

Instead, they’ve blindly expanded the program. Back in the early ’90s, just 90 health care facilities participated in 340B. Today, that figure is over 2,000.

The acquisition of smaller clinics, precipitated by 340B, will seriously drive up insurance costs for average Americans. Large, established health providers tend to charge more than smaller, independent clinics. And insurance companies respond to these higher treatment expenses by raising premiums.

Indeed, a study from three Duke University researchers published in the October issue of the journal Health Affairs looked into the price disparity between key cancer drugs provided at both corporate hospitals and clinics.

Noble Intentions

Researchers noted that between 2005 and 2011, the proportion of cancer services administered at independent clinics dropped by 90%. They found that the price gap between the two settings can be up to 50%.

And the average hospital bills insurance plans nearly 190% more for popular drugs.
340B has a similar effect on drug prices. Pharmaceutical manufacturers are now incurring heavy losses from 340B abuse. In 2010, this program cost the industry $6 billion. By 2016, that’s expected to more than double, to $13 billion.

Simple economics forces firms to compensate for losses by raising their prices, leading to higher medical expenses for average patients.

340B has a noble purpose. But it’s not fulfilling its mission to provide vulnerable patients with discounted drugs. Instead, 340B is being exploited by rich hospitals to boost their bottom lines. And these abuses are leading to higher insurance costs for everyone else.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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