Fix the 340B Program to Increase Access to Medicine

COMMENTARY

House lawmakers recently introduced legislation that would at last repair a program meant to provide low-income Americans with affordable medicine.

In theory, the federal 340B Program, named after the section of the 1992 law establishing it, allows hospitals serving underprivileged groups to buy medications at steep discounts. The idea was to improve access to drugs in areas where price was a barrier.

The problem is that the law has a loophole big enough to drive an ambulance through. Hospitals have exploited it, at the expense of patients, ever since.

It’s time for Congress to clean up this mess.

The basic mechanism of 340B is to give drug discounts to hospitals with large populations of poor and uninsured patients so that the facilities can charge these patients little or nothing for their medicine. The Centers for Medicare and Medicaid Services then reimburse the hospitals at full price. They’re supposed to use the difference to fund free care and services for low-income people.

But lawmakers, operating in their usual alternate reality, didn’t include any plan for oversight or enforcement. As a result, hospitals have simply turned the program into a revenue stream.

In the three-plus decades since the law passed, the number of hospitals claiming to serve low-income groups has expanded beyond all reason. Consider that Cedars-Sinai — Kim and Kourtney Kardashian’s maternity hospital in Los Angeles, California — which boasts a 4,000-piece art collection that includes Picasso, Warhol and Hockney, is eligible for 340B discounts.

Similarly, 2022 New York Times exposé revealed that the most profitable hospital in Virginia, the Richmond Community Hospital, gets 340B discounts. Yet it lacks a maternity ward and other basics. The newspaper also uncovered that the hospital’s supposedly “nonprofit” ownership group had been funneling profits from drug sales to facilities within its network in wealthier neighborhoods. As one Richmond doctor explained, the ownership group “was basically laundering money through this poor hospital to its wealthy outposts.”

Meanwhile, pharmacies nowhere near poor neighborhoods are making money off the program. Hospitals don’t have to dispense drugs through their own pharmacies, where, at least in theory, they could reinvest the surplus income into programs for the uninsured, as the law requires. Instead, 340B hospitals can contract with an unlimited number of for-profit pharmacies, which take the discount and charge patients full price without ever informing them.

To get a sense of just how profitable these practices have become over the years, consider some of the numbers. Annual discounted purchases through the program swelled from $4 billion in 2009 to $54 billion in 2022.

The average markdown hospitals received in 2022 was 57%. That same year, 340B hospitals cleared $44 billion in profit, with only 42% of that amount going to charity care. In fact, the vast majority of these hospitals earn more from selling the drugs than they spend on offering free care. The number of 340B facilities now exceeds 50,000.

While this industry balloons, nearly one in 10 adults reports skipping medicine prescriptions to avoid costs.

In short, a system intended to help uninsured and low-income patients has become one of legalized fraud, in which well-off hospitals hoard cheap drugs, resell them at full price to richer patients and pocket massive profits.

As a report in the journal Health Affairs found, “the 340B program is being converted from one that serves vulnerable patient populations to one that enriches hospitals and their affiliated clinics.”

The only bright side to this whole mess is that it would be relatively easy to repair with a few commonsense solutions. There are even potential fixes in the works, such as the 340B Access Act introduced in May.

First and foremost, any set of reforms must verify that income from 340B discounts reaches citizens in need, either in the form of free medication or programs that treat poor and uninsured patients at no charge.

Second, Congress must tighten and enforce 340B eligibility criteria based on accurate socioeconomic data about cities and neighborhoods. This would ensure that people in need — rather than the denizens of wealthy zip codes like Beverly Hills, California — get the benefits.

These two simple improvements would reduce rampant abuses of the current system.

Sally C. Pipes is president, CEO and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her latest book is “False Premise, False Promise: The Disastrous Reality of Medicare for All” (Encounter 2020). Follow her on X.