Healthcare providers profit by exploiting programs for the poor

A healthcare program aimed at helping vulnerable communities has sparked intense debate in recent years, but most of the focus has been on hospitals. A new study finds that federally subsidized clinics are exploiting the system, too.

Called 340B for a section of the 1992 Act, the program had good intentions, but its design encouraged profit maximization over helping patients in need. Many of the 55,000 hospitals and clinics in the program have become heavily dependent on the 340B. They have a great incentive to take advantage of the flawed structure to resell as many discounted drugs as possible to insured patients, not the low-income, uninsured Americans who were supposed to be the beneficiaries.

The program has grown fivefold in seven years, and much of that growth has come from “beneficiaries,” such as clinics that treat HIV/AIDS, sexually transmitted diseases and hemophilia. But in most discussions of 340B, the role of these recipients has been overlooked — so far, with a study released showing grant recipients earning much greater profit margins than 340B hospital grants.

First, understand how 340B works: Hospitals and grantees buy prescription drugs at a deep discount and then are reimbursed by insurance companies, including Medicare and Medicaid, for the full price of the drugs. The difference, or profit, has become a major source of income for service providers. For example, in an annual report for 2022, a Florida 340b clinic stated that 94 percent of its $300 million in revenue stemmed from such $340 billion in savings.

The shortcomings of 340B, now the second largest prescription drug program after Medicare, have been documented for at least a decade. “The financial benefits of 340B rebates accrue almost entirely to hospitals, clinics, and physicians. A 2013 article in JAMA by Boston University’s Rena Conte and Sloan-Kettering’s Peter Bach concluded in an article for JAMA Magazine.

But 10 years ago, clinic involvement was only in its infancy. More recently, a study by Eleanor Blalock for Berkeley Research Group found that beneficiaries now account for $21 billion in compensation and the profit margin for beneficiaries is much higher than that for hospitals—an incredible 73 percent, compared to 25 percent to 50 percent for hospitals.

Overall, drug purchases of less than $340 billion in 2021 totaled $45 billion, and reimbursements were $110 billion. Most of the $65 billion gap goes to hospitals, grantees, and contract pharmacies that these providers use to dispense outpatient medications.

About 80,000 pharmacies now have arrangements with beneficiaries — a number that has tripled since 2017, and generated an estimated $10 billion in profits annually; 91% of pharmacies are part of three large profit chains: CVS, Walgreens, and Wal-Mart.

Only who do these clinics and pharmacies serve? New research, published in the peer-reviewed American Journal of Managed Care, found that 91 percent of pharmacies were not even in the same zip code as the patron they contracted with and that the average pharmacy zip code household income was 33 percent higher. From that of the grantee’s zip code.

The role of the 340 billion beneficiaries has been largely overlooked in the past, but now is the time for serious action to address a government program that is exploding. Repairing the program will not be difficult. To start, grant recipients must publicly account for how they spend their windfall from the $340 billion rebates — especially because, unlike hospitals, about 70 percent of recipients’ drug margin is attributed to public service payers, particularly Medicare and Medicaid.

The use of out-of-contract pharmacies in wealthier neighborhoods can be curbed through regulation or legislation. Conte and Bach recommended a decade ago that discount rates apply “only to poor and uninsured patients” rather than to anyone treated at a 340B hospital or granted institution.

They also suggested that “hospitals and grant recipients be required to ‘transfer their savings from drug purchases to patients and insurance providers, including Medicare’, or better yet, that insurers take back about $340 billion in profits for hospitals and doctors and give those profits back to their beneficiaries.” .

This system could be much simpler than the Fads 340B. A study conducted by IQVIA last year found that using the “340B debit card” reduced out-of-pocket patient costs by 93 percent, but those cards were used in only 1.4 percent of the 340 billion claims. A new study conducted by a small hospital system in Kansas looked at a program where the 340B treatment for COPD was offered directly to patients, saving them $335 per month. The result: “a significant reduction in the average composite number of all-cause hospital admissions and emergency department visits,” saving $1,013 per patient.

The House Energy and Commerce Committee advanced legislation with new requirements that both hospitals and grant recipients must report “by location on the total number of patients receiving the $340 billion drug by payer, payments, total cost, and savings.” This is a step in the right direction.

Advocates for people living with HIV/AIDS and other conditions treated by recipients have special reason to support 340B reforms. In an opinion piece in POZ, two such advocates, Brandon M. McSata of the ADAP Advocacy Association and Guy Anthony of the Black, Gifted and Whole Foundation, assert that “stronger accountability and transparency is urgently needed for the 340B program to begin.” is working as intended, and patients will not continue to be left behind.”

Their concern is that if reforms are not enacted, any government program so poorly implemented could lead to political action to curtail it or end it entirely. “Inaction – it cannot but will – will very soon have serious repercussions for the care received by our community,” they wrote.

It is clear that if 340B is ever reformed, policymakers must target reforms not only at hospitals but also at beneficiaries.

James K. Glassman, a former American Institute fellow and undersecretary of state, advises health care companies and nonprofit organizations.

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