Hospitals Reap 340B Benefits While Charity Care Declines
In 1990 Congress authorized the 340B drug discount program “to stretch scare federal resources” and not serve as a cash-cow for covered entities eligible to participate under it. Under the program, prescription drug manufacturers are required to give steep discounts on drugs sold to safety-net hospitals, community health centers, and other providers with the understanding that savings would be used to make medications and healthcare services more affordable for patients. However, growing evidence suggests the program has strayed from its original mission.
Many patient advocacy organizations and healthcare providers, including community health centers, as well as a growing chorus of patients themselves are calling for greater transparency and accountability in how these healthcare providers use the savings from purchasing discounted prescription drugs. Meanwhile, major health systems fiercely oppose these changes. But why has the debate become so polarized? My organization, which has a strong interest in a functional 340B program to provide vital assistance to patients living with HIV, sought a better understanding of what’s happening.
This summer, in partnership with the Community Access National Network and the Appalachian Learning Initiative, we published an extensive analysis of the 340B program’s impact on covered entity annual revenues, executive compensation, and, for hospitals, levels of charity care spending. Our aim was to find out how these factors changed once healthcare providers became eligible to participate in the program. Our findings, particularly those related to hospitals, were eye-opening.
Using publicly available financial records, we analyzed 69 healthcare providers participating in the 340B program, including nonprofit hospitals, HIV care providers, and other covered entities. Since joining the 340B program, we found that annual revenues of these healthcare providers increased by an average of 824.32%, and their CEOs’ compensation increased by an average of 231.51%.
In 2021, in the midst of the COVID-19 pandemic, former Democratic Congressman Tim Ryan (Ohio 13), expressed what most American workers and patients struggling to pay their medical bills feel: “In the late ‘70s, a CEO made 35x the worker; today, it’s 300-400x the worker” (Forbes Breaking News, 2021). As patients struggle to pay the high cost of healthcare, does it seem fair that hospital executives saw an average increase of 206.10%? The patients we represent don’t think so!
What’s particularly striking—given that a core purpose of the 340B program is to help healthcare providers expand care to vulnerable and underserved communities—is that charity care as a percentage of annual revenues fell by nearly 15% at the hospitals we studied since they became eligible for the program. Charity care is the health care provided for free or at reduced prices to low-income patients.
To be clear, we are not suggesting any wrongdoing. Unlike community health centers and other federally funded providers, such as the State AIDS Drug Assistance Programs, hospitals are not required to use their 340B revenue in any specific way or for any underserved community. In other words, it might be legal, but is it ethical?
What we are saying is that the most salient rule regarding the 340B program, at least for hospitals, is that there are no rules. There’s only a double standard where some entities can take in millions in revenue by marking up the discounted drugs received through 340B yet are not required to explain how they are using those savings to help people in need. Nor are there restrictions on how this money can be spent. In this sense, the 340B program is essentially free money for these entities to use as they see fit.
Organizations like ours want the 340B program to function as intended. That’s why we advocate for the patients who depend on it for affordable medications, including many living with HIV/AIDS. In 2003, I briefly relied on the State AIDS Drug Assistance Program in the District of Columbia for my life-saving medications as a 340B-eligiblle client. I speak from experience that those 340B rebate dollars should be funding patient care, and not healthcare CEO pay raises.
Policymakers must act to reform the program, ensuring that revenue from 340B is used to reduce prescription drug costs for low-income patients. Additionally, common-sense reporting requirements should provide transparency into how these funds are spent.
These reforms should not be contentious, but with so much money at stake, some will inevitably seek to preserve the flawed status quo. It’s time for policymakers to act. Congress must prioritize reforming this vital program—and do it soon.
Brandon Mascata, a long-term AIDS survivor, is the CEO of the ADAP Advocacy Association.
