This Government Drug Program Is Annihilating American Healthcare

However, this quarrel is merely a manifestation of a much larger and more pressing issue.

The controversy centers around the 340B Drug Pricing Program, a scheme in which the HHS subsidizes drugs for hospitals that meet specific criteria. After a prolonged suspension of payments, the government agreed on a plan to disburse the funds but retrieve a portion of the money, leaving hospitals with a net gain of $2.7 billion. However, hospitals argue that there should be no claw-back, asserting that a payment of "only" $2.7 billion will plunge them into severe financial hardship.

This situation may seem complex, and indeed it is. The problem's roots extend far back. The 340B program, initially launched with noble intentions, has devolved into a wasteful expenditure of federal funds that benefits hospitals and profit-driven pharmacies at the expense of patients. The entire system is in dire need of reform.

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In 1992, Congress established the 340B program to allow healthcare providers serving impoverished communities to purchase drugs at substantial discounts. The rationale was that financially assisting these hospitals and clinics would enable them to better serve the most vulnerable patients.

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December 15, 2023

However, Congress overlooked a few crucial details. The 340B law does not explicitly stipulate how providers should allocate their savings. They have the freedom to spend the additional funds as they wish, without any oversight or obligation. Over the past three decades, hospitals have exploited this lack of specificity to amass billions of dollars in profit.

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Simultaneously, the program is not particularly discerning about which hospitals qualify for the discounts. These are supposed to be allocated to facilities that serve a "disproportionate share" of low-income patients. However, in recent years, the number of providers benefiting from 340B payments has skyrocketed, extending to hospitals in affluent communities that maintain a single small branch clinic in a rural area or low-income urban neighborhood.

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Between 2000 and 2020, the number of sites participating in the 340B program surged by over 500% — from 8,100 to more than 50,000. Many of these institutions manipulate the system by purchasing discounted drugs under 340B, then dispensing them at full price to insured patients. Last year, the difference between the discounted 340B price and the list price for all drugs acquired under the program amounted to $52.3 billion.

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So, how are hospitals utilizing this taxpayer-funded windfall? It would be understandable if the increase in 340B revenue corresponded with a rise in charity care, but hospitals have actually reduced their spending on it. A 2018 study by the Center for Regulatory Effectiveness discovered that the ability of people in severe economic hardship to afford medical care was actually negatively correlated with the growth of the 340B program.

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Profit-driven pharmacy chains also profit from the 340B program. Over half of the pharmacies in the country — approximately 32,000 locations — are contracted to dispense prescription medicine for providers in the 340B program. Not wanting to be excluded from the profit-making, they negotiate intricate profit-sharing plans with hospitals, the details of which are cloaked in secrecy. However, one fact is evident: Many prescriptions filled at these contract pharmacies are dispensed to insured patients, not the impoverished and uninsured patients the 340B program was designed to assist.

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A recent report by the Berkeley Research Group revealed that the average profit margin on commonly dispensed 340B drugs is 72 percent, but only 22 percent for non-340B drugs. In some cases, pharmacies recoup full market value on drugs that were purchased at a significant discount.

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It is evident that over three decades, the 340B program has degenerated from a well-intentioned (albeit somewhat ill-conceived) plan to aid struggling patients into a government-funded profit center for hospital groups and pharmacy chains.

Therefore, while hospitals lament that the HHS is not compensating them adequately, they are inadvertently highlighting a much larger issue: the entire 340B drug program has derailed due to a lack of government oversight and the predatory practices of corporate healthcare entities. It is high time for Congress to revamp the entire system.

Peter J. Pitts, a former FDA associate commissioner, is President of the Center for Medicine in the Public Interest.