Hospitals ride drug-discount program to big profits

Hospitals actually profit from a drug-discount program developed for low-income and uninsured patients because the program expanded to serve a richer, better-insured patient base, according to a study published in Health Affairs.

More than 20 years ago, a section of the Veterans Health Care Act created the 340B program, which gives hospitals with a disproportionate share of low-income patients discounts on drugs. Currently, about one in three hospitals qualify for 340B; the number of participating hospitals doubled between 2001 and 2011, according to the study.

The program has come under fire for its use within outpatient clinics, according to Bloomberg Businessweek. Qualifying hospitals can open clinics or buy existing ones to expand the reach of the discount, and still collect the full price of the discounted drug from insured patients.

This practice is more than just a desire for bigger profits, Molly Collins Offner, director of policy for the American Hospital Association, told Businessweek. "Many hospitals use the 340B savings to provide free or reduced-price prescription drugs to vulnerable patient populations, which allows them to provide more patient services and programs," she said.

The drug manufacturers taking a financial loss from the discounts dispute this claim, noting that most participating hospitals provide below-average levels of charity care. Moreover, co-author Rena Conti wrote, when insured patients get drug discounts, the savings are not passed on to either insurers or Medicare.

Since 2004, the study found, providers joining the program have largely served wealthier communities with greater proportions of insured patients, supporting the charge that 340B "is being converted from one that serves vulnerable patient populations to one that enriches hospitals and their affiliated clinics," they wrote.

Last June, Sen. Chuck Grassley (R-Iowa) expressed similar reservations about the program, voicing concerns that the profits are in fact primarily feeding CEO bonuses at the expense of Medicare, Medicaid and private payers, FierceHealthcare previously reported.

To learn more:
- here's the study abstract
- read the Businessweek article