Drug Discounts Should Go to Poor Patients, Not Hospitals

In 1992, the federal government mandated discounted drug prices for certain “safety-net providers”. The purpose was to ensure that these facilities, which served low-income patients, could acquire medicines at low prices to dispense to those patients. The drug-makers finance the discounts.

The 340B program is a roundabout way to finance a welfare benefit. The primary beneficiaries are hospitals, although only outpatient drugs are discounted via the 340B program. Evidence suggests that the program has become a profit center for hospitals. The number of sites benefitting from the program has doubled in ten years, to 16,500 across the country.

Are we meant to believe that the number of poor people has doubled in a decade? Even in the Obama economy, that would be a stretch. On the contrary, hospitals’ persistent lobbying has resulted in ever-expanded definitions of “safety net”; and the accounting requirements demanded by the government are byzantine.

It is a curious — and increasingly unacceptable — state of affairs. About 38 percent of outpatient visits to hospitals now happen at 340B-participating hospitals. The RAND Corporation figures that $6 billion, or 2 percent of U.S. outpatient drug spending, went through 340B in 2011. The340B discounts amounted to an estimated $1.6 billion.

Hospitals deny that they are exploiting the program for profit. However, the principle behind 340B is flawed: These hospitals are privileged with non-profit status because they are supposed to provide charity care. However, the discounts are financed by for-profit drug-makers, which are taxable businesses.

The best way to ensure that the 340B program is serving the needs of poor patients, and not padding the profits of hospitals, is to reform it so that the discounted prices go directly to low-income patients, instead of hospitals.

Comments (5)

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  1. Devon Herrick says:

    Hospitals are increasingly acquiring physician practices, which means they can profit from the 340B discount drug program even more. I’ve read about cases where oncology drugs were being purchased for a fraction of their normal cost and used in these practices.

    I’ve also heard of drug makers who put hospital clients on a quota system to prevent them from ordering more drugs than they need and diverted them (for profit) to facilities that do not qualify for the program.

    When I looked at this issue a couple years ago many experts believed the number of facilities that would qualify for 340B drugs would approach 20,000 under the Affordable Care Act.

  2. Ron Greiner says:

    The CEO of non profit Blue Cross of Florida Inc. has said they are moving funds from their non profit status to their for profit businesses. If I was paying that guy $6.7 million a year I would really be upset with him for making it public knowledge. I would ask him, “Why would you tell everyone, goofball.”

  3. Ron Greiner says:

    Dr Ron Paul in 2001 wrote a letter to President Bush begging to let Federal tax dollars for Rx go to seniors in a tax free MSA so seniors decide where to spend these funds instead of government bureaucrats and drug companies. Bush paid no attention because Dr Ron Paul NEVER gets any love.

    I think the good doctor was correct that consumers should decide if, when and where to spend their money.

    Less government / More FREEDOM

  4. Matthew says:

    Benefits should go straight to the people instead of organizations in the first place. The only person an individual can rely on to look out for them are themselves. Organizations and government have other interests.

  5. Dale says:

    “Evidence suggests that the program has become a profit center for hospitals.”

    Wherever they can find it they will capitalize on it.