In Washington, D.C., lawmakers are engaged in marathon talks about how to reduce health care costs. There haven’t been any breakthroughs so far, but here’s a handy suggestion: they could stop funding programs that encourage hospitals to overbill the federal government.
Let’s talk about 340B, the drug pricing problem that you may not have heard of, but the one that seems to have swallowed the federal budget.
The program started as an attempt to help hospitals that serve poor communities afford prescription drugs. “The program allows 340B hospitals to stretch limited federal resources to reduce the price of outpatient pharmaceuticals for patients and expand health services to the patients and communities they serve,” the American Hospital Association (which supports the program) writes. It’s a nice thought, sort of like believing Santa delivers gifts or the Easter Bunny delivers candy.
Here is where the problem comes in. “Hospitals use 340B savings to provide, for example, free care for uninsured patients, offer free vaccines, provide services in mental health clinics, and implement medication management and community health programs,” the AHA claims. In reality, many hospital systems are using the money to fund services at their more expensive facilities (the suburban ones that do not serve the poor) and are effectively neglecting the needy people at troubled hospitals.
A 2022 story in the New York Times found that Bon Secours Mercy Health in Richmond ginned up some $100 million per year in profits by misusing the 340B program: buying drugs for Richmond Community Hospital (which serves a poor community) and reselling them at its nearby suburban hospitals. That made Richmond Community Hospital one of the most profitable in the state of Virginia, even as patient service languished.
“You look at Saint Francis in Chesterfield and Memorial Regional in Hanover and look at their facilities and then you look at Richmond community,” local minister Ralph Hodge said at the time, mentioning two suburban health centers. “It’s African Americans who are once again getting the short end of the stick while other communities are receiving the benefits.”
In the years since, 340B has exploded. “For 2024, discounted purchases under the 340B program reached a record $81.4 billion—an astounding $15.1 billion (+23%) higher than 2023,” health care analyst Adam J. Fein wrote. “How big is the program? 340B purchases are now more than 50% larger than Medicaid’s net prescription drug spending.”
Bill Cassidy, a doctor as well as a U.S. Senator, leads the Senate Committee on Health, Education, Labor, and Pensions. It completed a report on 340B earlier this year. “This investigation underscores that there are transparency and oversight concerns that prevent 340B discounts from translating to better access or lower costs for patients,” Cassidy said. “Congress needs to act to bring much-needed reform to the 340B Program.”
The Senate report also noted problems with the way places as different as Sun River, Yakima Valley, CVS Health, and Walgreens are using (and abusing) the program. The report adds that, even though drug makers provide billions in discounts, they “claim they have difficulty taking actions that ensure 340B Program integrity, such as preventing unlawful diversion to ineligible patients and duplicate discounts.”
Cassidy’s team recommends requiring covered entities to provide detailed annual reporting on how 340B revenue is used to ensure direct savings for patients. They also see the need to address potential logistical challenges caused by increased administrative complexity leading to burdens that may impede patient benefit from the program. Finally, they recommend an investigation on the types of financial benefits contract pharmacies and TPAs receive for administering the 340B Program.”
Those would be sensible steps, but they would, in reality, just trim around the edges of a program that has grown out of control because it has been abused by so many people for so long. Instead of spending years struggling to rein in the 340B program, Congress should just shut it down.
If it wants to provide discount prices on prescription drugs to needy people, Congress can find a better way to do it. The 340B program is a failed experiment and needs to end right away.
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