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Hospital 340B Profits

By November 6, 2019November 7th, 2019Commentary

The federal 340B program was designed to create substantial discounts for hospitals and other providers so that they could offer cheaper drugs to poor patients.  It has been greatly abused, to say the least.  Now we are in the middle of a titanic fight between drug companies on the one hand, and the 340B providers, mostly hospitals, over the future of the program.  Why the fight–because the drug manufacturers want higher prices and profits on drugs that aren’t used for truly indigent patients and the hospitals want to continue making lots of money by using the program for patients it wasn’t intended to be used for and marking up the drugs to make even more money.  An article in the Journal of the American Medical Association Network Open indicates just how lucrative the program has been for hospitals.   (JAMA Article)   The study period was from 2013 to 2016.  The study looked at Part B drugs only, which generally are expensive specialty medications, so keep in mind that total hospital profits are likely even higher.

During 2013 hospitals received $2.1 billion in 340B revenue, rising to $3.7 billion in 2016.  Assuming a 50% discount in what the facilities paid for the drugs, that is $1.9 billion in profits in 2016, or $2.5 million per hospital on average.  While these profits are small in the big scheme of hospital budgets, only .3%, they represent an outsized contribution to profits and are almost 10% of total uncompensated care costs supposedly borne by the hospitals in that year.  As is usually the case, hospitals have an elaborate set of rationalizations for their abuse of the program.  But here is what is actually the case.  They are buying drugs at a huge discount and they marking up the price and making an exorbitant profit, usually from commercial insurers.  This causes higher premiums and higher copays for patients.  To me, while I have no love lost for drug companies, there is no question that Congress or CMS should limit use of 340B drugs to truly low-income or uninsured patients and should forbid hospitals or other providers from marking up that drug cost.

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