There is no need to seek out ghosts, goblins, and ghouls for a fright this Halloween. Just look at the devilish 340B drug discount program.

Congress created it in 1992 to fix a problem it had created two years earlier when an overreaching government implemented price controls in the Medicaid drug benefit program. As a condition to participate in Medicaid, pharmaceutical companies are required to participate in the 340B program and give discounts of between 20-50 percent to certain federally funded healthcare facilities and disproportionate share hospitals (DSH) known as “covered entities” that serve large numbers of low-income and uninsured patients.

The intended savings from the program are supposed to go to patients of these covered entities. Yet, due to unclear legislation, legally questionable guidance by the Health Resources and Services Administration (HRSA), which oversees the program, and expansion under the Patient Protection and Affordable Care Act, the program has grown exponentially and is vulnerable to abuse.  

In 2014, 340B discounted prices were at $9 billion; by 2020, they reached $38 billion, an increase of 27 percent from 2019 and 322 percent from 2014.

On April 14, the healthcare data analytics firm IQVIA released its study, “The 340B Drug Discount Program Exceeds $100B in 2022,” which showed a massive increase in spending and provided further evidence of the exploitation of the program. The report found the misuse of the funds by hospitals and contract pharmacies is ongoing, and patients are still not getting the benefits Congress intended to receive. 

A third-party study published in November 2021 by Xcenda, “340B and Health Equity: A Missed Opportunity in Medically Underserved Areas,” provided further evidence of how the program is not being used as intended to help low-income and vulnerable individuals get access to low-cost prescription drugs. Instead, it is boosting hospitals’ coffers and their contract pharmacies’ profits in areas that do not serve low-income people.

A September 24, 2022, New York Times article analyzed how 340B was being abused at Richmond (Virginia) Community Hospital, owned by Bon Secours. Rather than reinvesting profits from 340B drug sales into its facilities and improving patient care, the money was being diverted to Bon Secours’ facilities in Richmond’s wealthier neighborhoods. Dr. Lucas English, who worked in the hospital’s emergency department until 2018, said, “Bon Secours was basically laundering money through this poor hospital to its wealthy outposts … It was all about profits.”  Dr. Peter B. Bach, who has written about the use of 340B profits to open more clinics in wealthier areas, said the hospitals are “nakedly capitalizing on programs that are intended to help poor people.”

Beyond the impact of the 340B program on pharmaceutical sales, biopharmaceutical drug companies are facing further market challenges due to government price controls. The IQVIA study noted that the Inflation Reduction Act (IRA) price controls will impose additional pressure on future research and development. We have already seen the negative impacts on drug development from IRA price controls. Additionally, the IRA expands the 340B drug discount program despite its flaws.

The 340B program is a nightmare for taxpayers and patients. Congress should reform the program to comply with its original intent. There is no clear definition of a patient who should be considered an uninsured, low-income individual who does not qualify for Medicare or Medicaid. Duplicate discounting must be addressed with increased oversight. Improved reporting requirements would also help ensure patients are benefiting from the program as intended.

Handing the discounts to patients rather than handing out profits to hospitals and contract pharmacies would be a sweet treat not just on Halloween but throughout the year.