OPINION:
Like so many government programs, the so-called 340B prescription-drug program began as a well-intentioned effort designed to help expand access to pharmaceuticals for low-income Americans. And like many government programs, it has morphed into a bureaucratic blob of abuse and inefficiency that is contributing to growing unease about the integrity of our health care system.
The 340B program was enacted in 1992 as part of the Veterans Health Care Act. The original intent was to assist safety-net providers in improving access to outpatient prescription medicines for uninsured, low-income patients. The 340B program requires drug manufacturers to sell prescription drugs at deeply discounted rates to eligible hospitals, in the hope that the savings will be passed onto needy patients in the form of charity care.
The problem, however, is that owing to a lack of oversight, some participating hospitals have found that they can buy prescription drugs at the 340B discount — typically between 25 percent and 50 percent below market rates — and then bill the government and private insurers for the difference, generating millions in profits. Not only does this create incentives for hospitals to abuse the system, it also makes it less likely that any savings will be passed on to low-income patients.
The current state of the 340B program is so misguided that hospitals are actually making millions off the program’s discounts. For instance, a report released last year by the Charlotte Observer found that Duke University Hospital in North Carolina purchased $65.8 million in drugs through the 340B discount program, saving $48.3 million. The hospital then sold the drugs to patients for $135.5 million, for a tidy profit of $69.7 million.
In fact, gaming the 340B system has become so widespread that in April, Healthcare Corporation of America, a company based in New Jersey, sold $1 million in converted bonds to finance marketing of its 340B software program, which promises to help facilities “maximize their profits through the subsidy program.” In a public statement, the company referenced a report by Berkeley Research Group that found 340B drug purchases will increase from $6 billion in 2010 to $12 billion in 2016.
Not only are hospitals making millions gaming the program, a recent report also found that a majority of hospitals enrolled in the program provide hardly any charity care at all — even though expanding such care was the primary intent of Congress when the program was established. According to the report’s findings, more than two-thirds of hospitals that receive 340B drug discounts provide less charity care as a percentage of patient costs than the national average — including for-profit hospitals that don’t even qualify for the program. Furthermore, the report found, owing to a lack of oversight, “little of the billions of dollars in discounts have been directly traced or linked with charity care for vulnerable indigent patients.” In short, the 340B program is not serving its intended purpose while providing a wealth of opportunities for hospitals looking to game the system.
In spite of these findings, the problems with the 340B program will likely get even worse if recent trends are any indication. From 2005 to 2011, the number of participating hospitals nearly tripled from 591 to 1,673. Today, one-third of all U.S. hospitals participate in the 340B program.
Even more alarming is the fact that the 340B program is slated for expansion exponentially under Obamacare, opening up access to the program to a plethora of new providers. Worse, a hospital can increase its 340B eligibility the more Medicaid patients it serves, thus the number of participating hospitals will likely increase greatly as more and more states expand Medicaid under the terms of President Obama’s health care law.
As is so often the case with well-meaning federal programs, the 340B program has grown from what was supposed to be a limited effort to help the poorest among us into something much more menacing. Not only is a shrinking proportion of the benefits of the program being passed on to uninsured low-income patients, hospitals and other providers are using the program to line their own pockets. Lawmakers ought to take the time to take a much closer look at this program, and reassess what — if anything — is really being achieved.
Justin Sykes is a policy analyst at Americans for Prosperity.
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