Government programs often spiral out of control, harming the very people they were supposed to help. Obamacare was full of such perversities. The most obvious are skyrocketing prices caused by a law that claims to make care “affordable.” While fixing the structure requires action by Congress, the Trump administration has gone into the policy weeds with a machete to fix some of Obamacare’s lesser known, but still destructive, policies.
One of these is a drug program known as 340B. It’s not sexy, but it is big – the second largest drug purchasing program in the nation and growing so fast it will soon be the largest. It lets some hospitals and clinics buy certain prescription medicines at a big discount but sell them to patients at full price.
Ironically, 340B was created to fix an earlier government blunder. In 1990, Congress decided to force pharmaceutical companies to give discounts to hospitals treating Medicaid patients. But drug companies already voluntarily gave big discounts to many hospitals, which the new rebate formula prohibited, causing some prices to go up. Two years later, Congress created 340B to fix its own mess. The program remained small until 2010, when Obamacare added many more hospitals and other facilities to the program.
The Obama administration expanded 340B in another way – it allowed hospitals and clinics to cut deals with an unlimited number of “contract pharmacies.” This lets these providers buy drugs at steep discounts and ship them to a local retail pharmacy, where they’re often sold to patients – and their insurers – at full markup. The hospital or clinic pockets the difference after subtracting pharmacy fees. And although it’s not allowed, providers sometimes double-dip by using both the 340B and Medicaid discounts on the same drug, illegally increasing their cut.
As a result of the Obama expansion, a program intended to support low-income patients with serious illnesses has spiraled out of control. It has grown from a small, targeted program to be the second-largest federal drug purchasing scheme. Whereas once 340B was limited to about 1,000 hospitals, clinics, and affiliated pharmacies, now more than 53,000 entities are included, a majority of them retail pharmacies like a local CVS or Walgreens.
Hospitals that are part of the 340B program are raking in tens or hundreds of millions of dollars in discounts, but by and large not passing the savings on to patients. The Cleveland Clinic, for example, brought in nearly a billion dollars in extra money over three years. An analysis in Michigan found that 340B hospitals there spent far less on charity care than other hospitals.
The Trump administration sees the problem and is trying to fix it by moving to a rebate model (rather than an upfront discount) to make it easier to follow the money. Eligible hospitals would still get major savings for eligible patients, but it would be harder to game the system. It’s a good start but is now tied up in court. The American Hospital Association and the state of Maine have sued and temporarily blocked the reform.
Many hospitals reaping millions of dollars in revenue are desperate to defend the Obama expansion of 340B. One of their strategies is to get Republican state legislators to embrace the Obama version of 340B, based on claims that it helps rural providers. Many of these legislators represent small, rural hospitals that may genuinely need help.
Yet instead of being used as cover for large, highly-profitable hospital systems, Republican legislators should help the Trump administration to achieve needed reforms while looking for conservative, market-driven solutions to the real problems facing rural healthcare.
