By Tom Kowalski
The best of intentions sometimes go awry, and that is what has happened with a federal drug discount program aimed at helping the most vulnerable Americans get the medications they need and manage their health effectively.
In 1992, Congress created a program called 340B, so-named for the section where it resides in the Public Health Service Act. The program requires drug manufacturers to provide steep discounts—20 to 50 percent—to health care providers serving large populations of low-income or uninsured patients in exchange for their drugs being covered under Medicaid.
Initially, 340B worked as intended. To qualify, health care facilities had to be non-profit and serve a disproportionately high number of Medicaid beneficiaries. The program significantly stretched the impact of federal health care dollars in states across the country. In fact, 340B had a huge positive impact in Texas, which leads the nation in uninsured patients.
But over the past 10 years, the number of hospitals and clinics in 340B grew by 500 percent. Today, some 30,000 facilities are participating providers—fully one-third of the country’s hospitals. The Affordable Care Act (ACA) significantly expanded the list of 340B-eligible providers. More health care facilities are joining the program, even as the number of uninsured declines. It simply defies credibility to believe that one in three American hospitals focuses almost exclusively on low-income/uninsured patients.
Today, with its rapid growth and lax government oversight, 340B is rife with abuse. Some health care facilities have figured out how to game the system and are exploiting it to boost their bottom lines. Some of them are selling the discounted drugs to patients with insurance and charging them full price and then not using that revenue to help low-income patients. According to an extensive investigation by North Carolina’s News & Observer, there is little evidence to show that these health care facilities are passing the discounts on to patients; instead, they are pocketing the difference.
Take Duke University Hospital, for example, whose patient population is 95 percent insured. In 2011, of more than $2.5 billion in revenues, Duke provided only $35.2 million in free or discounted indigent care. On average, Duke spends just 2.5 percent of its annual budget on charity care, yet Duke is a 340B provider. According to the News & Observer, Duke leveraged 340B discounts to increase its profits by almost $50 million in 2012. That’s nearly $15 million more than Duke spent on free or discounted care that year for low-income patients.
By and large, the 340B program has been largely self-regulated since its inception. Providers must maintain records and permit pharmaceutical manufacturers to see them at any time, but that occurs rarely, and government regulators have taken a hands-off approach.
Until recently, Congress has been unwilling to address problems with the 340B program, but that may be about to change. Last month Congress held its first 340B oversight hearing in more than a decade and only its second hearing since the program was created 23 years ago. Lawmakers and policy makers are now examining how to stay true to Congress’ original intent to extend federal dollars through drug discounts and also ensure that discounts are actually benefitting patients. The most common suggestions are tightening the eligibility criteria for health care facilities and changing the patient definition guidance to make sure 340B-discounted drugs don’t wind up in the hands of non-qualifying patients.
If the rampant abuse of 340B goes unchecked, it could give rise to a serious public backlash and cause lawmakers to dismantle the program entirely. That would be a shame. A lot of people in this country cannot afford their medications and are forced to skip doses or refills. That leads to poorer health and more costly, invasive procedures.
Properly run, the 340B program could do some serious good. Congress just needs to step up, put an end to this profit-hungry exploitation, and return the program to its intended purpose of helping the poor afford vital drugs.
Tom Kowalski is president and CEO of the Texas Healthcare and Bioscience Institute.