It’s counterintuitive, but it’s true. A federal program designed to force drug manufacturers to sell prescription medicines at sharply reduced prices to not-for-profit hospitals and other healthcare safety-net providers is actually driving your drug costs higher. Called the 340B program, this drug discount program actually increases drug costs to patients, like you.
How the Program Works
Under federal law, drug manufacturers must sell prescription medicines to qualifying not-for-profit hospitals at prices often dramatically below market. Those discounted prices are often 50-70% off of list prices and apply to all drugs used on an outpatient basis, if the manufacturer’s drugs are covered by Medicare and Medicaid. Despite the very low prices these 340B hospitals pay, they can mark up the prices they charge patients or bill insurance companies and the Medicare program. The mark-ups sometimes are staggering.
What the Studies Show
Study after study comes to the same conclusion. Low-cost drugs to 340B hospitals cost patients and insurers more. Milliman, an insurance actuary and consulting firm, found that drug costs imposed by 340B hospitals on patients with commercial and Medicare insurance are almost 200% higher than non-340B hospitals. A state treasurer outlined how 340B hospital markups can exceed 1,000%, far above the price drug makers charge any purchaser. Worse, a peer-reviewed paper showed that 340B hospitals are slow to adopt lower-cost biosimilar drugs, likely because they profit by using drugs reimbursed at higher prices instead of biosimilars. A report issued by the Congressional Budget Office concluded the program incentivizes higher-cost drugs.
Explosive Growth
The pricing by 340B hospitals is all the more shocking because of how pricing is driving program growth. With 340B hospitals accounting for 87% of all 340B purchases and profits, the program has grown by more than 1,300% since 2010. As of last year, 340B hospitals accounted for almost $70 billion in 340B profits. Those profits come from payments made by patients, insurance carriers, employers, Medicare, the states, and others. Equally alarming, these hospitals don’t even have to share how they’re spending those profits.
What about the Patient?
You might expect patients to be shielded from 340B hospitals’ high charges, but they typically are not. The higher charges imposed by 340B hospitals are all too often passed on to patients as higher premiums, higher deductibles, and higher co-payments.
But aren’t these 340B hospitals, as not-for-profits, obligated to provide financial assistance to at least some of their patients? Not really.
340B hospitals provide little charity care to uninsured or underinsured patients, and the data show charity care levels are shockingly low. According to 340B hospitals’ own filings with the Internal Revenue Service, they devote only 2.33% of their yearly expenditures to charity care. Shockingly, for-profit hospitals that cannot access 340B prices actually provide more charity care than their 340B competitors. Just to put 340B hospitals’ abysmally low charity care rates into perspective, 31% of U.S. residents are uninsured or underinsured.
It’s an upside-down world when hospitals that get lower prices charge more and provide less in charity care. But that’s where we are.