Transparency Needed to Ensure Safety-net Program Helps Underserved
America's biggest hospitals are quietly undermining a safety-net program for low-income patients. The 340B drug pricing program desperately needs oversight to ensure that tens of billions of dollars in discounts actually improve underserved patients' access to health care.
Congress created the 340B drug pricing program back in 1992 to help certain hospitals – specifically, those that serve a disproportionate share of low-income patients or provide safety-net care – provide affordable medicines to underserved patients.
It was a well-intentioned idea, but Congress didn't set up many guardrails to prevent abuse of the program. So in short order, hospitals figured out how to game the system to boost their bottom lines.
In 2022, hospitals and other covered entities purchased more than $54 billion in medicines at discounted, 340B prices. That's a 678% increase from a decade earlier, when about $6.9 billion in discounted drugs were purchased. Yet 340B-enrolled hospitals' spending on charity care, as a share of their total operating costs, has fallen 30% over that period.
In other words, over ten years, these hospitals have raked in hundreds of billions of dollars in discounts while reducing their focus on charity care.
Obviously, the program isn't working as lawmakers hoped.
Just take a look at how hospitals are using their ballooning 340B revenue. They've been on an acquisition and consolidation spree, buying up physician practices to increase market share and their referral base. And they're opening outpatient facilities in wealthy areas so they can sell 340B-discounted drugs to insured patients, charging them high markups and pocketing the difference.
This self-enrichment scheme is harming ordinary Americans. The explosive growth of the program is "increasing provider consolidation, distorting incentives for efficient care, and impacting overall utilization," according to a recent study from one Columbia University economist. The study further concluded that "the increase in 340B hospital and grantee participation from 2014 to 2021 increased overall Medicaid spending by $391 per enrollee, or over $32 billion per year."
There's also widespread concern that hospitals aren't merely violating the spirit of the law – but are actually obtaining "duplicate discounts" that are expressly prohibited by federal statute.
Specifically, these prohibited discounts occur when covered entities receive 340B discounts and then dispense the drugs to Medicaid patients, thus causing Medicaid to submit a rebate request to the drug manufacturer. Federal law requires manufacturers to offer 340B prices to covered entities or send a rebate to Medicaid – not both.
Independent government agencies, including the Government Accountability Office and the Office of the Investigator General within the Department of Health and Human Services, have cited duplicate discounts as a concern for years, but HHS has not taken necessary actions to address them.
Given the myriad of problems with the 340B program, Johnson & Johnson recently proposed offering 340B prices to certain covered entities as retroactive rebates, rather than up-front discounts. J&J ultimately shelved that proposal after regulators and some members of Congress voiced concerns.
But counterintuitively, that blowback is a welcome sign. For years, the 340B program has grown exponentially with almost no oversight from Congress. It's about time lawmakers finally paid attention to the program.
For the sake of patients and taxpayers, lawmakers ought to put guardrails in place to make sure hospitals' rapidly growing revenue from discounted 340B drugs goes to care for truly disadvantaged patients – and doesn't cause negative ripple effects for ordinary Americans.
