Time To End Scandalous '340B' Drug Boondoggle

Dan Horowitz
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Posted: Sep 21, 2015 7:33 PM
Time To End Scandalous '340B' Drug Boondoggle

What if I told you I could get the government to force someone to sell you their product for a steep discount, and then you could resell the product at its original price? Does that sound like a business you might be interested in?

The answer, obviously, is yes – and that's exactly why hospitals and pharmacies have been rushing to enroll in one of the least widely known yet most outrageous get rich quick schemes that Congress ever shackled our economy with.

The story begins in 1992, when well-meaning liberals in Washington were looking for a way to improve health care services for poor, underserved people – clearly an admirable ambition, even if it has ended in complete disaster.

Their idea was to force drug companies to provide discounts of 20-50 percent to hospitals that serve low-income patients. While technically, drug companies choose to enroll in this program, if they don't, their drugs aren't eligible for Medicaid.

Not exactly "voluntary".

However, the worst part is – the hospitals aren't required to sell the discounted drugs at a discount to patients! In many cases, the hospitals buy the drugs at the discount price, turn around and bill patients' insurance for the full price, netting a handsome profit for merely doing paperwork!

An typical example, according to documents obtained by congressional investigators, Duke University's hospital has been raking in an extra $50 million a year in profit by taking full advantage of the forced discounts.

Many of the hospitals and pharmacies that benefit from the program are, like Duke, legally registered as non-profits.

According to tax filings, the Duke University Health System is operating at a roughly 20 percent “profit” (revenues minus costs) each year. It doesn't pay taxes on that profit and still charges ordinary patients full price for those same drugs it purchases with the 50 percent, government-forced discount.

The then-“CEO” of this non-profit, Victor Dzau, was paid over $2 million in 2013. Does that sound like a charitable organization to you? Last time I checked, the person who runs my local homeless shelter doesn't drive a Ferrari.

Sadly, the problem has actually become worse today than when it began - thanks to the bureaucracy of Obamacare.

In 2009, a little-known consulting company called Talyst realized on behalf of its clients (hospitals and pharmacies) that there was major money to be had - if they could quietly make one small change. Talyst began lobbying Congress and, a short time later, viola – the program was expanded in Obamacare.

Big companies like CVS Caremark and Rite Aid are now benefiting from the program too. Their lobbyists have been canvassing Washington's marbled corridors of power, working hard to protect this perk. So it's not that surprising that the government agency working to “clarify” the rules of the program recently released a draft regulation that greatly favors the very same companies - and not us, the actual patients.

This new sop to hospitals and pharmacies comes despite calls from key government watchdogs to reform the program, called 304B after the section of the law that authorized it.

In March, the Government Accountability Office ripped the 304B program in a report to Congress. Among the agency's findings were that the program relies on beneficiaries to “police themselves” to follow the rules. Although the agency is authorized to audit some of the hospitals benefiting from "50 percent off" drugs, it has never conducted a single audit.

The GAO also found that in their eagerness to profit from the forced discounts, hospitals are actually in danger of harming the very low-income patients the program was originally intended to help by crowding them out of the benefit of reduced cost medicines.

Congress needs to step in and rein in this out of control program before it becomes even worse. Unfortunately, human nature has turned an attempt to help the needy into a cash machine for cynical, politically-connected corporations. Enough is enough.