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In Federal Drug Program, Hospitals and Pharmacies Use the Poor to Get Rich – Pacific Research Institute

In Federal Drug Program, Hospitals and Pharmacies Use the Poor to Get Rich

Telling the truth about wasteful healthcare spending is dangerous. Too many people are invested in the status quo to admit that a program isn’t working, or worse, being exploited.

Recently, defenders of the deeply problematic 340B drug discount program came out swinging. On July 29, Doctors Robert Chapman and Andres Wiernik authored a column attempting to rebut my criticism of the program. Their defense was misguided. We can’t let tendentious sentiments keep us from reforming a program so obviously enabling corruption.

Passed in 1992, the 340B program was designed to help the poor and uninsured afford expensive prescription drugs. The 340B program requires drug companies to offer drugs at a discount to eligible hospitals and “contract pharmacies” that work with those hospitals. These discounts are usually around 20 to 50 percent of the cost of a drug.

Thanks to lax regulatory oversight, though, the program was ripe for abuse. So hospitals began taking advantage of 340B to enhance their bottom lines with hundreds of millions of dollars intended to help the indigent — those who really need it.

Even the government admits the program has major problems. In 2011, the Government Accountability Office criticized the program for poor oversight. In 2013, Senator Charles Grassley, who holds one of Congress’s top oversight posts, wrote a letter to the Health Resources and Services Administration noting that “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.”

Most recently, the Office of the Inspector General at the Department of Health and Human Services concluded that hospitals participating in the 340B program were ignoring the regulations governing the program to turn a profit.

Considering the government’s own admission that 340B is being abused, Chapman and Wiernik’s defense is unconvincing.

Nonetheless, there’s no reason to doubt their sincerity. As oncologists serving large numbers of poor patients, they probably do see the benefits of the 340B program.

But their experience isn’t universal. When the 340B program was first created, only hospitals and pharmacies serving unusually large numbers of patients without insurance or on Medicaid were eligible. Thanks to new rule changes and poor oversight, one in three U.S. hospitals and thousands of pharmacies now participate in the program.

As Grassley noted, the reason for this rapid growth is that the 340B program does not explicitly require eligible health care providers to pass on those savings to patients. It’s not uncommon for hospitals or pharmacies in the 340B program to make profits in excess of 80 percent on drugs this way.

Those steep profits are made off the backs of those with private health insurance. This is Economics 101. Forced discounts represent lost revenue. To make up for that revenue, drug researchers have no choice but to raise prices for paying customers to keep their laboratories and the pipeline for new drugs to reach the market open.

In response to this, Chapman and Wiernik mount an unusual defense of hospital profiteering — money made from the 340B program compensates hospitals for costs incurred by other government programs such as Medicare and Medicaid. “These are needy patients whose reimbursements often do not cover our cost of care,” they write.

Given Medicare and Medicaid’s low reimbursement rates, it’s easy to sympathize with hospitals trying to make ends meet. But the 340B program is not a solution to this problem. It’s trying to make up for two failing government programs by sanctioning corruption in a third government program.

This is the problem of health care in a nutshell. We’re constantly putting Band-Aids on gushing wounds instead of demanding that lawmakers treat the root problems.

Finally, when I noted that hospitals were acquiring oncology practices at a rapid clip, Chapman and Wiernik disputed that this was because hospitals were eager to exploit the 340B program. “[Consolidation of practices] is a fact of modern healthcare, based on deep economic changes in the marketplace driven largely by low reimbursement,” they noted.

It’s true that consolidation is a broad trend, but you have to be wearing blinders to suggest the 340B program isn’t driving the acquisition of oncology practices. Just look at Duke University Hospital. In 2012, the hospital reported profits of $69.7 million. The hospital says it saved $48.3 million in drug costs thanks to the 340B program. So executives at a single hospital were able to triple their profits thanks to a program designed to help the poor.

The goals of 340B are certainly admirable — and helping patients afford life-saving treatments is a goal everyone can support. But there’s no reason to continue to defend crony capitalism. Abuse of 340B must stop.

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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