The federal 340B program was created to help low-income patients get access to affordable medicine. But government programs usually explode beyond their original purpose. The same has happened here, with the program becoming an unaccountable revenue stream for hospitals and pharmacies.
The Trump administration is considering a sensible reform. It wants to make hospitals show that the discounted drugs they receive through 340B actually go to eligible patients.
Unfortunately, most congressional Democrats oppose the change, as does U.S. Rep. Jack Bergman, a Republican representing the Upper Peninsula and much of northern lower Michigan. Bergman introduced legislation to exempt certain health centers from this proposed reform.
He should reconsider. Conservatives should work to change this unaccountable slush fund that has strayed far from its intended purpose.
The 340B program requires drug manufacturers to sell certain medicines to qualifying hospitals and clinics at steep discounts. The idea was that safety-net providers serving low-income patients could stretch scarce resources and provide more care. But that is not how the program usually works.
Under current rules, hospitals can buy drugs at a discount. They then bill insurers, employers, taxpayers or patients at much higher prices — and keep the difference. There is no clear requirement that the money that hospitals save from the discounts goes directly to needy patients. There is also little evidence that they use the money for charity care.
And that is how a program designed as a safety net became a slush fund.
The 340B program used to be relatively small. But an Obama-era rule allowed hospitals to contract with outside pharmacies, dramatically expanding the number of vendors from which hospitals could profit from 340B discounts. The program now costs 10 times what it did a decade ago.
The evidence that any of this helps patients is weak. Hospitals participating in 340B often generate more revenue than those that don’t, but they do not necessarily provide more charity care. In Michigan, 340B hospitals generate roughly 49% more patient revenue than non-340B hospitals, according to one recent study. On average, these hospitals bring in $647 million annually, nearly three times more than providers that don’t participate.
Michigan patients already pay more for health care than they used to, and families in northern Michigan and rural areas feel this pressure sharply. The 340B program is not solving their problems. In some cases, it may make their situation worse by encouraging hospitals to mark up prescription drugs prices, pass those costs along to insurers (and their customers) and keep the profits for themselves.
In a move allegedly made to help lower-income citizens, Michigan expanded Medicaid about a decade ago by changing the rules to make more people eligible. Since 2014, the number of residents enrolled in Medicaid has grown from about 1.9 million to 2.4 million. That means more low-income residents are now covered by taxpayer-funded health care. Yet 340B purchases exploded over the same period. Since Medicare and Medicaid enrollees already get discounted drugs, the 340B program should not be drastically increasing at the same time that patients receiving government-funded insurance is.
Hospitals, pharmacies and their allies are now running campaigns urging lawmakers to protect and expand 340B. They claim the program provides access to affordable health care. But lawmakers should demand proof that patients benefit, not merely assume that hospital systems deserve another protected revenue stream.
The Trump administration’s pilot proposal would bring basic accountability to the program. Hospitals currently receive their discounts up front. Under the pilot, however, hospitals would pay market prices and receive rebates only after showing that the drugs went to eligible patients.
This is the kind of anti-fraud reform conservatives should support. Rep. Bergman has long called for fiscal responsibility and government accountability. The 340B program is an opportunity to apply those principles to a federal program that badly needs scrutiny.
Michiganders deserve a health care safety net that works for patients, not institutions. Congress should allow the administration’s 340B rebate pilot to move forward.
