Tag Archives: 340b

Drug Discount Plan Actually Lifts Costs

A new study by the Pacific Research Institute finds that a program to give discounted prescription drugs to poor Americans is riddled with abuse, has created a perverse incentive for providers to profit instead of effectively serve the poor and is hurting overall health care quality.

“The 340B Program is a well-intended effort to give America’s most vulnerable populations access to discounted prescriptions,” said Dr. Wayne Winegarden, author of the new study. “Over the years, it has evolved into a complicated mess, rife with abuse, and has encouraged health providers to put profitmaking ahead of serving the poor. Our study shows that Congress must reform 340B, so we can get back to the original mission — ensuring America’s poor have access to life-saving prescription drugs at a low cost.”

Under the 340B Program, Medicaid prescription drug discounts were extended to healthcare providers that largely serve the poor. Participating drug manufacturers provide 20% to 50% discounts for drug costs sold to qualifying clinics, hospitals and pharmacies.

See also: New Way to Lower Healthcare Costs  

In “Addressing the Problems of Abuse in the 340B Drug Pricing Program,” Winegarden found that:

  • With little guidance from the federal government, there is no requirement that hospitals provide the discounted drugs solely to people who are truly in need.
  • In practice, hospitals can prescribe discounted medicines purchased through the 340B Program to any of their patients, including those who have insurance and can pay full price – and pocket the difference. Many hospitals have taken advantage of this loophole and government-guaranteed profits.
  • Neglecting the program’s mission to serve the most vulnerable, more 340B hospitals have been set up in recent years to serve higher-income patients and secure more profit.
  • Exploiting this profit motive, the program encourages participating hospitals to prescribe high-priced medicines, as discounts are based on a share of the drug’s costs. They earn more revenue when prescribing the most expensive drug possible.
  • The program has also led to a rising trend of healthcare consolidation, as independent practices are not eligible for 340B discounts and are losing patients. In recent years, hospitals have increasingly acquired independent practices and set them up as hospital outpatient departments.

Winegarden concludes that the program has resulted in serious unintended consequences that are affecting the quality of the overall health care system, and must be addressed by policymakers in Washington. He argues that Congress should consider enacting reforms to the 340B program to ensure that the program solely benefits uninsured and low-income patients, while improving both oversight and administration.

See also: A Road Map for Health Insurance  

Watch PRI’s New Animated Video: Why Did The Government Swallow the 340B Fly?

Little-Known Loophole Inflates Health Costs

The rising cost of insurance is putting a squeeze on American families. And this problem could get even worse if lawmakers don’t fix a little-known federal drug program called “340B.”

Created by Congress in 1992, 340B was originally intended to provide low-income people access to needed medications. This program allows hospitals, clinics and other healthcare providers
serving large numbers of poor and uninsured patients to buy drugs at a deep discount. The idea was that these facilities would pass along those savings to their patients.

But 340B is not working as intended. Instead, it’s being manipulated by hospital systems to increase profits. It isn’t helping the poor. And this exploitation is driving up health insurance costs for all Americans.

Price Disparity

The program’s major flaw is it doesn’t actually require healthcare providers to pass along those drug discounts to low-income patients. Participating facilities are free to buy huge volumes of cheap medicines and then sell them at full price to insured patients — and pocket the difference.

That’s exactly what many participants are doing. Duke University Hospital has accumulated $280 million in profits from 340B over the last five years. The drug chain Walgreens is projected to make a quarter of a billion dollars off the program over the next half decade.

Established hospital systems have increased their revenue from 340B by buying up specialty clinics. These smaller practices often use a high volume of expensive drugs. By acquiring these clinics, hospitals can purchase even more discounted medicines through 340B and further boost profits.

In 2012, hospitals enrolled more clinics in 340B than in the previous 20 years combined. A new University of Chicago study shows that most of these clinics are located in relatively affluent areas. In other words, they aren’t even pretending to serve the low-income and uninsured populations 340B was intended to help.

Unfortunately, lawmakers have not responded to these abuses by fixing 340B’s structural flaw. Instead, they’ve blindly expanded the program. Back in the early ’90s, just 90 health care facilities participated in 340B. Today, that figure is more than 2,000.

The acquisition of smaller clinics, precipitated by 340B, will seriously drive up insurance costs for average Americans. Large, established health providers tend to charge more than smaller, independent clinics. And insurance companies respond to these higher treatment expenses by raising premiums.

Indeed, a study from three Duke University researchers published in the October issue of the journal Health Affairs looked into the price disparity between key cancer drugs provided at both corporate hospitals and clinics. Researchers noted that, between 2005 and 2011, the proportion of cancer services administered at independent clinics dropped by 90%. They found that the price gap between the two settings can be as much as 50%.

Pharmaceutical manufacturers are now incurring heavy losses from 340B abuse. In 2010, this program cost the industry $6 billion. By 2016, that’s expected to more than double, to $13 billion. Simple economics forces firms to compensate for losses by raising their prices, leading to higher medical expenses for average patients.

Noble Purpose

340B has a noble purpose. But it’s not fulfilling its mission to provide vulnerable patients with discounted drugs. Instead, 340B is being exploited by rich hospitals to boost their bottom lines. And these abuses are leading to higher insurance costs for everyone else.