Bad Hospital Actors and 340B

As the 116th Congress gets underway, health care is top of mind not only for lawmakers, but also for Americans everywhere. According to a recent Gallup poll, 6 in 10 Americans say they are concerned about the increasing cost of their personal health care.

One driver of consumer angst is the existence of bad hospital actors in the American health care system. A study published in Health Affairs this month found hospitals’ inpatient care fees increased by 42 percent between 2007 and 2014. To make matters worse, there have been multiple cases of hospitals overcharging patients by as much as 1,000 percent, and some hospitals are even charging uninsured patients more than 10 times the actual cost of care. Many hospitals are also not doing enough to protect patients from surprise billing for services that occur in their facilities. A recent report by report by Axios found surprise medical bills are the number one problem Americans face when it comes to health care costs. At the same time, revenue gains at not-for-profit hospitals, which receive generous tax breaks and other financial incentives from the federal government and taxpayers, continue to climb.

For nearly two decades, the 340B Drug Discount Program has been abused by large, wealthy hospitals and has helped contribute to hospitals’ bottom lines. But let’s back up — what exactly is the 340B program, and why are hospitals taking advantage of it? The simple answer: To pad their bottom lines.

Created in 1992, the 340B program is a vital safety-net program created to help millions of vulnerable or uninsured patients. The program requires drug manufacturers to provide steep discounts on certain drugs to participating safety-net health care providers, who are then expected to improve or increase care for vulnerable or uninsured patients. However, that isn’t what we are seeing on the ground, and today, the program has gone way off track.

Even some 340B eligible hospitals agree. In a letter to the U.S. House of Representatives Energy and Commerce Committee, Piedmont Healthcare, a large health system in Georgia, wrote, “The program needs to be improved so the original intent of the program is followed by all and systems such as ours that already do so are not put at a competitive disadvantage by other systems which do not.”

Shrinking Options, Higher Bills

Financial incentives have led to explosive growth in the 340B program — with an average annual growth rate of more than 20 percent since 2010 — yet there is no guarantee patients are benefiting from the growth.

Ongoing consolidation in the hospital sector is driving up patients’ costs, with evidence showing commercially insured patients often pay more at hospital settings than independent physician practices for medicines. The 340B program plays a significant role in this consolidation. Large hospitals and hospital systems participating in the 340B program continue to acquire independent physician clinics and other treatment practices to increase the volume of drugs they can purchase through the 340B program at a steep discounted price. The hospitals can then turn around and bill fully insured patients and their insurers for the discounted drugs at the full price, keeping the difference between the discounted price and full price.

Many 340B hospitals have also altered their prescribing trends to increase revenue. The Government Accountability Office found that 340B hospitals tend to prescribe more medicines and more expensive medicines, and a recent analysis from Berkeley Research Group found that once hospitals enroll in the 340B program, their Medicare Part B spending per patient increased by nearly a third.

Patients are paying more out of pocket because they are forced to seek treatment from more expensive hospital outpatient settings as fewer and fewer independent physician practices remain. If the hospital participates in the 340B program, patients tend to receive more or more expensive medicines, further increasing their costs.

As costs go up for patients, surprise billing has also become an issue for patients at 340B hospitals. As recently as December of last year, a 340B-eligible hospital in Tennessee was in the news for delivering unexpectedly large hospital bills to patients. Baptist Memorial Hospital in Tennessee billed a patient an additional $8,000 after the patient had already paid $11,000.

However, not every entity participating in the 340B program is using the program to pad their own bottom lines. The vast majority of grantees focused on improving access to patients who are uninsured, isolated, or medically vulnerable are using the 340B program exactly as intended. Grantees have strict reporting requirements that hold them accountable to how they spend their funding — requirements that don’t exist for larger hospitals participating in the 340B program.

Hospitals are contributing to higher overall patient costs by taking advantage of programs like 340B. As we continue debating necessary improvements to our health care system, it’s time to fix the 340B program so that it helps the people it was created to benefit: Patients.

The Alliance for Integrity and Reform of 340B. Put Patients First: Preserve Access, Protect the Program and Provide Greater Oversight