Hospitals are Swindling Patients Through a Loophole in a Prescription Drug Program

Despite making great strides in health care innovation and technology, the American health care system has been overburdened by COVID-19. The last thing we need is for the most vulnerable Coloradans to be left hanging out to dry by greedy interests in our health care system. The medical system is so frequently built against those who need help the most, and this is an under-recognized attack on these individuals.

Hospital corporations in Colorado have been taking advantage of a promising government program: the 340B Drug Pricing Program. 340B was founded with the best of intentions — to help uninsured and low-income patients get the care they need while supporting hospitals that provide charity care. It requires drug manufacturers to provide outpatient drugs to qualifying 340B hospitals at drastically discounted prices. This was intended to advance health equity, not increase the profits of already successful hospitals.

Yet over the last several years, many of these 340B hospitals have found loopholes in the program that allow them to swindle patients by absorbing these savings themselves rather than passing discounts on to patients. Under the program, hospitals receive prescriptions at an approximately 50% discount and then sell them for full price rather than passing the savings on to their patients.

As a result, many hospitals are making huge profits off the program and giving away very little charity care. A recent national study by the Pacific Research Institute found that “non-profit” 340B hospitals make 37% more in profits and give 22% less of their net patient revenue to charity care compared to the average of all hospitals.

This ridiculous situation has been caused by two dynamics: the broadened definition of qualifying 340B hospitals under the Affordable Care Act and the abuse of “contract pharmacies.” Originally, there were 90 participating 340B hospitals; now, there are over 2,500. Yet only 38% of 340B hospitals and 29% of hospital outpatient clinics are in medically underserved areas. At the onset of the program, hospitals were limited to one contract pharmacy, but they are now allowed to contract with an unlimited number of pharmacies. Unsurprisingly, the number of these contract pharmacies has soared from 1,300 to nearly 30,000, but just 26% of these pharmacies are in medically underserved areas. The unfortunate reality is that in the current environment, the 340B program incentives hospitals to prescribe more drugs through their huge and growing network of contract pharmacies.

Coloradans are particularly affected by the abuse of 340B. As Pacific Research Institute found, Colorado hospitals are making tens of millions of dollars in revenue and profit thanks to their low spending on charity care and massive networks of contract pharmacies. Saint Joseph Hospital in Denver, for example, has 15 contract pharmacy arrangements, and all sample hospitals gave away meager amounts of their net patient revenue towards charity care. Parkview Medical Center in Pueblo gave away 0.57%, Saint Joseph Hospital gave away 1.52%, Valley View Hospital in Glenwood Springs gave away 1.05%, and Yampa Valley Medical Center in Steamboat Springs gave away just 0.21%.

Since mid-2020, many drug manufacturers have said that the lack of consistent regulation and baseless expansion of the 340B program has gone too far and have restricted drug discounts to 340B hospitals’ contract pharmacies. In the last couple months, hospitals, drug manufacturers, and the government have forced the courts to decide on this issue, but the courts have said they need help from Congress because 340B guidelines are too ambiguous.

Over the years, congressional leaders from both parties have raised concerns about the program’s requirements and how the lack of oversight impacts the integrity of the program. Now, as the expansion of the program and profiteering continues, there is an urgent need to reform 340B through Congressional action so that vulnerable patients can access the care that they desperately need.