The federal 340B Drug Pricing Program was designed to encourage hospitals and clinics to provide low-income patients with more charity care. Today, the program costs taxpayers billions of dollars. Still, there is far more evidence that hospitals are using the money to subsidize unrelated operations than helping those in need.
There is an aphorism that says if you are going to say something deceptive, go big. Here’s what the American Hospital Association says about the 340B program: “Because it is funded by drug company discounts, not federal dollars, 340B doesn’t cost the government one penny.”
Any careful observer of the 340B program knows the AHA spin on it is a head-scratcher. It’s widely understood that under 340B, hospitals can purchase drugs at deep discounts from biopharmaceutical manufacturers. However, the hospitals don’t pass on those discounts when dispensing drugs to Medicare patients. Instead, hospitals bill Medicare at much higher prices than the drugs cost them and keep the difference — fleecing taxpayers in the process.
Several years ago, the federal government tried to lower Medicare reimbursements for drugs that had been purchased at a 340B discount. The hospitals sued to keep their 340B revenue, and they won.
While we know this arbitrage of 340B discounts has been taking place, we can’t quantify the total cost to taxpayers since the 340B program and the revenue secured by hospitals is entirely opaque.
Fortunately, the Medicare Advisory Commission (MedPAC) — an independent, bipartisan body that advises Congress on Medicare — recently studied 189 Part B drugs in the Medicare program and compared the discounted prices hospitals paid for those drugs under the 340B program with the prices hospitals actually billed Medicare for the same drugs. MedPAC found that the prices hospitals charged to Medicare were significantly higher than the purchase price of those drugs under 340B, costing taxpayers $3.9 billion.
MedPAC found that Medicare fee-for-service payments for these 189 Part B drugs exceeded 340B prices by 48 percent. Medicare spent $11.9 billion to purchase drugs that had only cost hospitals $8.1 billion under the 340B discount program.
Of course, these numbers are only for a limited number of Medicare Part B drugs. It does not include the billions hospitals are overcharging employers and commercial health plans when they fail to pass along 340B discounts.
For the last 30 years, hospital revenues have soared from the program. Instead of helping the needy, hospital charity care has been drastically curtailed.
The federal government allowed unlimited for-profit pharmacies and pharmacy benefit managers to participate in the program. Now, billions in profits from 340B accrue to for-profit entities. Hospitals’ ability to arbitrage 340B discounts has also spurred the hospitals to further manipulate the program by opening satellite offices in wealthy neighborhoods to bring in patients with good employer-funded insurance coverage. So, a program intended to serve the uninsured and those in need now serves many affluent communities.
Pioneer Institute sent a Freedom of Information Act request to the federal government asking about the level of 340B revenues being secured by 10 large hospitals. We wanted to compare 340B revenues with charity care spending at individual hospitals. After consulting with the hospitals, the federal government denied the request. It argued that such data from a federal program was “confidential.”
Keen policymakers understand that many government programs intended to help the needy are captured by the programs’ wealthy vendors, while poor patients are left behind. The 340B program is the poster child for this phenomenon and is a national disappointment for patients and taxpayers who deserve better. The question remains: Will Washington do anything to help needy patients or continue to force American taxpayers to foot the bill for hospitals?
