In an attempt to save taxpayers and the solvency of the country, President Donald Trump and the Department of Government Efficiency have been cutting millions of dollars in hidden waste. They should turn their sights to the 340B program, one of the most wasteful and abused programs the government has to offer.
What was once a well-intentioned initiative to assist nonprofit hospitals in low-income communities, the 340B Drug Pricing Program has morphed into an unchecked profiteering scheme.
In 2010, the Obama administration opened the floodgates to government waste by changing the rules to allow 340B hospitals to include contract pharmacies and other provider types. Nonprofit hospitals are still using a loophole in the federal program to turn their services intended to help the poor into cash-cow profit centers.
Many of these hospitals are nonprofit in name only, exploiting their tax-exempt status and the 340B program. Many institutions qualify for the program by operating a facility or clinic in a low-income area, but shift their outpatient services and specialty practices to wealthier neighborhoods where they can charge higher rates.
These hospitals operate under the guise of helping the poor and purchase deeply discounted drugs through 340B, then bill insurers, often at full price, at upscale satellite clinics, which are far removed from the underserved communities the program was meant to help. They aren’t just ripping off insurers. Since patients pay cost-sharing on drugs, failure to pass along the discounts means the patient also pays more. The result is a profit-driven manipulation of a safety-net system, with hospitals pocketing the difference while low-income patients see little to no benefit.
The New York Times uncovered an example of this from the nonprofit Richmond Community Hospital, which is cited as making $100 million in annual revenue. The hospital began with its first building in the low-income downtown area, but in recent years, it has opened facilities in more affluent neighborhoods. Once the new facilities were open, they started cutting services from their main hospital and using funding to provide more services for facilities in wealthier neighborhoods. The parent company of this hospital’s last recorded profit margin from RCH was up 44% in 2010.
RCH exploited the 340B program by purchasing drugs at the government program rate and selling them at a sickening markup. the New York Times also found that: “thanks to 340B, Richmond Community Hospital can buy a vial of Keytruda, a cancer drug, at the discounted price of $3,444, according to an estimate by Sara Tabatabai, a former researcher at Memorial Sloan Kettering Cancer Center.” Medicare may pay as much as $12,000 for this vial, a handsome profit pocketed completely by the hospital. While this drug was necessary for the patient to be treated, RCH saw it as an opportunity to upcharge patients and abuse the intent of the program, which is to service low-income communities.
The Senate HELP Committee’s report on 340B conducts a deep examination of this and other similar schemes and recommends requiring hospitals to report on how 340B savings are used by the hospital. Unfortunately, state legislatures across the country are moving in the other direction. Republicans in Kentucky, Tennessee, South Dakota, and North Dakota this year voted to obstruct private sector attempts to limit its abuse. Oklahoma is considering following their lead. These efforts protect hospitals’ revenues while doing nothing to ensure these revenues are spent on the charity care these “nonprofit” hospitals ostensibly provide.
These state efforts run counter to DOGE’s cost-cutting efforts and the Trump administration’s priorities. Trump’s executive order on “Lowering Drug Prices by Once Again Putting Americans First” sets the ground to reimburse hospitals for actual costs incurred in purchasing 340B drugs properly, as they tried to do in the first administration.
The courts struck down that effort on procedural grounds, and the EO looks set to cure the procedural deficiency. Furthermore, a leaked draft of Trump’s HHS Budget proposes to shift the office managing 340B into the Centers for Medicare and Medicaid Services, giving the agency full visibility of the discounts and reimbursements received by hospitals. These moves indicate the administration is serious about refocusing the program to its core mission: securing discounted drugs for vulnerable patients. States should support Trump in this objective.
340B’s dramatic change in architecture under the Obama administration allowed greedy executives running “nonprofit” medical organizations to hijack what was once an altruistic program. The fraud and abuse within the 340B program have gone too far. We must stop this madness, protect our patients, and safeguard our children.
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People deserve healthcare providers driven by patient care and not by the greed of outrageous profits.
Republican legislators must reject hospitals’ efforts to abuse Federal taxpayer dollars in their state and return the healthcare system to its true purpose: helping those in need and healing our communities.
Joe Grogan is the former director of the Domestic Policy Council