Hospitals Are Scamming the Poor on Drug Program

Health Care Hospital Accountability

New Orleans This is all complicated stuff, but it smells to high heaven.  The simple truth is that it adds another nail in the coffin to the pretense that many nonprofit tax-exempt hospitals care two cents about the poor, who they claim – and are obliged by their tax benefits – to serve.  The latest example is the way many nonprofit chains are scamming the 340B discount drug program.

In its latest story on these healthcare scandals, The Wall Street Journal, does a good job of explaining 340B and the hospital scams.  Congress established the 340B program in 1992 to support what were known then as “disproportionate share hospitals.”  These hospitals had to be nonprofits or public facilities with an inordinate share of Medicare and Medicaid patients, in other words, elderly and poor families.  Because their patient demographics made their sustainability both more difficult and more critical, 340B mandated that they receive discounts from pharmaceutical companies on drug purchases.  The original expectation in Congress was that this would benefit about 90 hospitals.  Now, thirty years later there are some 2600 hospitals in the program, and in way too many cases, the intended patients are not getting the benefits, while the hospitals themselves are piling up the big bucks by charging full price, not passing on the discounts, and using the program to serve higher income patients.  

Living in Louisiana for decades, those us still sentient are well aware of the sharp elbows and fast dealing for hospitals to qualify as “disproportionate share” because this was a headline grabber that ensnared former governor Edwin Edwards in one of his many corruption trials back in the day where it was alleged, he had pulled strings for a hospital to qualify.  That was then, but now, especially since the program was expanded by the 2010 Affordable Care Act, a new category was added for “rural referral centers” which opened the floodgates it seems. Huge hospital chains in Cleveland, Detroit, Boston, and Chicago, are now in the program and making out like bandits without any discernable reduction in drug pricing or healthcare services to the poor.

The Journal has the facts cold, having gone through hospital 990s, cost reports, and more.  The Cleveland Clinic with $1.35 billion in net income snuck into 340B claiming they were rural referral, but offered no discounts and didn’t increase its charity care.  The University of Michigan had an “estimated margin of $482 million on 340B drugs.”  They found that 340B hospitals claimed 2.7% for charity care and non-340B facilities claimed 2.6% for charity care, which just about settles the case in my mind.  They found that “88 of the 111 rural referral centers weren’t located in areas deemed rural” by the government health agencies.  They found that they can get some high-priced drugs in the $6000 and $50000 per month range for pennies on the dollar, but do not pass on the savings and simply make bank.  They found that “61% of the remote sites of private nonprofit 340B hospitals were in areas with higher rates of private insurance than the parent hospitals”, although government hospitals were better than the nonprofits.

If Governor Edwards was still alive, he would have a few humorous quips about this and probably ask for repayment of court costs and more.  In fact, there seems to be little legislative or regulatory requirement that these hospitals actually pass on the discounts and follow the spirit of the original law.  The Biden administration has reportedly asked Congress to require 340B hospitals to report exactly how they are using the discounts they receive.  

Will we see a change of course from this latest scandal?  I doubt it.  The hospitals that replied to the Journal were all mealy-mouthed about other programs, using the money for gaps in reimbursement, and offered piles of other excuses for why they weren’t providing actual free charity care, while claiming charity care, but the truth of the matter is inescapable.  They aren’t caring for the poor. They shouldn’t have the benefits of their tax exemptions.  The government is falling down on its responsibility to the people by not making them do right. Good intentions are being warped for profit.

Lives are at stake. Something has to change.