(The Center Square) – Michigan hospitals are systematically exploiting a program for low-income patients, according to a new report.
Released by Hospital Spending Watch, the report examined how hospitals are financially benefitting from the 340B Drug Pricing Program.
Dr. Lisa Grabert, a health policy professor at Marquette University, analyzed public data on cash flows from Michigan hospitals participating in the 340B Drug Pricing Program. She spoke with The Center Square in an exclusive interview regarding her findings in the report.
“My research shows that Michigan hospitals are exploiting a program designed to help vulnerable patients and diverting millions in earnings to Wall Street – while leaving the very patients they’re supposed to be helping behind,” Grabert said. “Michigan families deserve a health care system that puts patients first. Every dollar meant to support vulnerable communities should do exactly that. It’s up to lawmakers to hold hospitals accountable.”
The 340B Drug Pricing Program was created by federal law in 1992. It allows eligible hospitals to buy outpatient prescription drugs at steep discounts, all while billing insurers and patients at full price.
“The idea [is] that they’ll use the savings to expand access to care for low-income and uninsured patients,” Grabert said. “In reality, the lion’s share of Michigan’s 340B hospitals are reselling those discounted drugs at a hefty markup and pocketing the difference.”
Only certain eligible hospitals and clinics can voluntarily participate in the 340B Drug Pricing Program. To qualify, hospitals generally must meet federal criteria, such as serving a high percentage of low-income or uninsured patients. In Michigan, there are currently 87 hospitals that participate in the program. Of those, Henry Ford Health, McLaren, and University of Michigan Health are some of the biggest.
According to Grabert’s research, Michigan’s 340B hospitals reported 49% higher patient revenue than non-340B hospitals. While supporters of the program argue that additional funding helps support charity work, expanding the hospital’s workforce and pay, and infrastructure, the report found this is not reality.
“340B hospitals delivered 34% less charity care than non-340B hospitals,” Grabert said. “Instead, they funneled 113% more into Wall Street investments—some $41 million—than non-340B hospitals.”
While the program is not directly taxpayer funded, critics argue taxpayers are indirectly affected through high Medicare and Medicaid spending.
“The abuse of 340B by tax-exempt hospitals also means that Michigan taxpayers are bankrolling institutions that fail to deliver the community benefits they promise,” Grabert explained. “Instead, Michiganders’ tax dollars are enabling those hospitals to direct their money into Wall Street investments.”
The report found that, instead of benefitting patients, hospitals are using the 340B Drug Pricing Program as a “profit engine.”
One specific example of the drug mark-ups the report alleged was at Henry Ford Jackson. There, the hospital charged patients nearly $10,000 for an arthritis medication, which was nearly four times the average sales price.
According to Grabert, system-wide cases like this contribute to ever-increasing healthcare costs, both in Michigan and nationally.Report
“My findings reveal a system stacked against Michigan families—one that allows hospitals to get rich off of a program intended to help vulnerable patients,” Grabert said. “By selling drugs at high markups to Medicare and commercially insured patients, 340B hospitals are forcing premiums and out-of-pocket costs up—and thereby inflating overall health costs.”
Another report recently found that, of America’s 100 largest cities, Detroit residents are paying the highest amount as a share of their median monthly household income. In the Motor City, essential medical visits and medicine cost an average of 13.2%, which is the highest percentage in the country.
Currently, the Michigan legislature is considering a bill which would expand certain aspects of the 340B Drug Pricing Program. Hospitals have applauded House Bill 4878, which was proposed by Rep. Curt VanderWall, R-Ludington, in September.
The Michigan Health and Hospital Association said the bill “protects hospitals’ contract pharmacy arrangements.”
“The legislation ensures that eligible, participating 340B hospitals can continue to stretch scarce resources to support healthcare providers serving vulnerable patients and communities across the state—without using state or federal taxpayer dollars,” the association said in a statement in support of the bill.
Grabert said the bill will make it even easier for hospitals to exploit the 340B program.
“Policymakers should close loopholes, not widen them,” she said. “In the end, patients would face higher costs.”
Critics of the program, including Grabert, argue that federal reform is necessary to address these issues.
“Congress can start by tightening eligibility standards and ensuring that only true safety-net hospitals can participate in 340B,” Grabert said. “Lawmakers should also spell out how 340B savings can be spent: on lowering patient costs, providing more charity care, and investing more in the community rather than sending money to Wall Street.”
