Through a mix of gross incompetence and active complicity, the federal government is allowing big hospitals to abuse a safetynet program, thereby defrauding taxpayers and harming patients' access to medicines.
Each year, massive hospital systems exploit the loopholes of a drug pricing program called 340B, which is meant to provide reduced-price medicines to eligible safety-net clinics and hospitals serving large populations of low-income and otherwise vulnerable Americans.
To make matters worse, some 340B-eligible hospitals seem to be contributing to prohibited 'double dipping' by collecting hefty discounts for drugs that are also subject to the Medicaid rebates manufacturers pay to state Medicaid agencies. Allowing hospitals to profit off 340B while contributing to these unlawful duplicative payments undermines the integrity and long-term sustainability of the program and its ability to help low-income communities afford health care.
Here's how the problem evolved.
Congress created the 340B program to benefit low-income patients by allowing eligible 'safety net' hospitals and clinics serving vulnerable populations to purchase drugs at substantial discounts. These hospitals and clinics can then charge insurers full price for these discounted medicines and keep the difference. Supposedly, these hospitals and clinics would then use this 'spread' to reduce out-of-pocket costs on medicines or offer more charity care to poor, underinsured, or uninsured patients.
Unfortunately, this well-intended law was never paired with adequate eligibility, transparency, or enforcement safeguards.
Hospitals quickly realized that consolidated ownership structures could extend 340B profit generation into well-to-do ZIP codes, where they could charge insured patients full price and pocket the difference, with no requirement to direct the spread back to facilities serving low-income or vulnerable populations.
It's mind-boggling how this exploitation unfolds in practice. For example, the Cleveland Clinic Hospital entered the 340B program as a 'rural referral center' in 2020, despite its physical location near downtown Cleveland., The facility made $1.35 billion in 2021, with $136 million -- about 10% of its income -- resulting from 340B profits., However, the hospital didn't extend any new drug discounts to poor patients that year.
This grift is exacerbated by government mismanagement of Medicaid, the joint federal-state health safety net for lowincome Americans. Many hospitals are collecting huge 340B profits on drugs reimbursed through Medicaid, which is legally entitled to rebates that manufacturers must pay to state Medicaid agencies.
Federal law prohibits this type of 'double dipping,' but the Centers for Medicare & Medicaid Services and HRSA (both under the Department of Health and Human Services) have opted not to implement government watchdog recommendations to stem it.
It's time for HRSA and HHS to take action to restore integrity to the 340B program -- and ensure that regulators and administrators are doing their jobs. The 340B program was designed to help poor Americans, not enrich hospitals.
Saul Anuzis is president of 60 Plus, the American Association of Senior Citizens. This originally ran in the DC Journal.