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GAO Report Supports Finding Abuse of 340B Program by Hospitals

By July 13, 2015Commentary

The 340B program is intended to allow hospitals, and other providers, that serve a disproportionate number of low-income patients to get prescription medications at highly discounted prices.  The Government Accounting Office has issued yet another report revealing how hospitals are abusing the program.  Despite the apparent wish of the 340B program’s designers that it benefit a few providers who served large numbers of low-income patients, currently over 40% of US hospitals participate, which is no surprise since they have figured out how to make big profits on the program. The GAO initially notes that a significant fraction of the hospitals participating in the program have low levels of uncompensated and charity care.  Once in the program, there are few limits on which patients the hospitals actually use the drugs they purchase with a 340B discount.  So the hospital can buy drugs very cheaply and turn around and use them on any patients, including ones for which it bills much more than the drug cost.  GAO found that this is exactly what appears to be happening to Medicare, where per beneficiary Part B drug spending in 2012 was $144 at participating 340B hospitals as opposed to $60 at non-participating ones, on an adjusted basis.  This raises Medicare spending and beneficiary costs, as they pay higher copays.  The hospitals are responding to an obvious financial incentive to buy drugs inexpensively and use them on as many patients as possible where they can charge the payer a higher rate.

Abuse of the 340B program is rampant, readily apparent and inexcusable.  The Adminstration apparently intended to produce rules to cut the use of the program back to its original scope.  Hospitals, however, squealed loudly and through prodigious lobbying have derailed the new rules.  No one feels sorry for drug manufacturers, who generally have high prices and high profits, but there is no excuse for allowing the program to be a windfall for hospitals, who also tend to make a lot of money these days, and to have Medicare and commercial payers have to jack up premiums to support this hospital rip-off.  Right now the 340B law and rules do nothing to prevent this abuse and don’t specify that hospitals must use any profits they generate from these practices to benefit low-income patients.  The title of the GAO report says it all:  Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at Participating Hospitals.  Amen.

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