Americans assume hospitals are in the business of keeping us healthy, not of buying drugs inexpensively and then reselling them with a huge markup. We like to — alas, naively — assume that the Hippocratic oath applies to the whole medical community.
Unfortunately, an ongoing federal program seems to have pushed many hospitals away from helping patients and toward becoming the nation’s biggest drug pushers.
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The Trump administration has an excellent opportunity to rein in government spending by focusing on hospitals that push this kind of exploitative policy, then pass the cost on to the taxpayer. A big problem is that hospitals push higher-priced care that results in higher federal costs. Some programs are not defined in a way that protects taxpayers from higher costs. Medicaid is a big-ticket item for the taxpayer, and hospitals pushing up the price of drugs takes away from other priorities.
The program is known as 340B, and it was set up three decades ago to help certain hospitals buy prescription drugs. The program was a carve-out for critical access hospitals, rural care centers, nonprofit organizations, and others “that serve low-income and indigent populations,” according to the American Hospital Association.
Helping this kind of care facility is a great goal. But the exponential growth of the program should raise the ire of taxpayers and those in the federal government who are tasked to rein in costs. The program has grown from $5 billion a year in 2010 to nearly $67 billion in 2023. That number is expected to grow, but it shouldn’t.
As is often the case with big federal programs born from good intentions, there is simply too much fraud in the system.
Earlier this year, federal lawmakers detailed allegations against the Cleveland Clinic, which has raked in nearly a billion dollars from the program. A hospital in Richmond used the program to make $276 million. Neither example had anything to do with helping patients. They were just money grabs.
Luckily, the federal government is getting serious about reform. The Department of Health and Human Services wants to move oversight of 340B from the Health Resources and Services Administration to the Centers for Medicare & Medicaid Services. CMS is more likely to crack down on possible fraud in the program.
“If I was a hospital or a covered entity that was reliant on the 340B program, and I was told anything was going to change, not just who’s regulating it, but that anything was going to change, I would be very concerned,” the president of consultancy 3 Axis Advisors said. “The reason is because 340B has become gasoline in the tank for a lot of these institutions, rightly or wrongly.”
Another step that is in the works is more oversight.
“Under the program, drug manufacturers will be allowed to require safety-net hospitals and clinics to purchase select 340B drugs at full price and then submit claims data to receive manufacturer rebates after dispensation,” law firm Husch Blackwell wrote. “The pilot program is limited to drugs listed on the Centers for Medicare and Medicaid Services (CMS) Medicare Drug Price Negotiation Selected Drug List and is subject to proposed safeguards and requirements.”
The initial pilot is limited in scope, but it should be a useful guide and will show hospitals that there is a better path forward.
Other steps should also happen quickly. The Senate committee that investigated 340B recommended several. It said any entity getting 340B revenue should show that the money is directly being used to help patients, not to boost the provider’s bottom line.
Senators also recommended looking into the types of financial benefits that pharmacies get for overseeing the 340B program. Auditors must make sure that increasing fees do not disadvantage covered entities and patients.
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Finally, policymakers must draft clear guidelines that ensure that manufacturer discounts actually benefit 340B-eligible patients. This should include changes in law to define which drugs are eligible for the program. Not all drugs should be covered, of course, and limiting which ones are should help reduce fraud.
The bottom line here is that hospitals should use drugs to help people, not to make money from the federal government. Reform is long overdue, but it may finally be on the way.
Jared Whitley is a longtime Washington, D.C., politico and award-winning writer. He has worked in the Senate, White House, and defense industry. He has an MBA from Hult business school in Dubai.