Grassley and Pitts Fighting Cronyism in 340B Program

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  • 08/21/2022

DUH is the acronym for Duke University Hospital, and that seems somewhat appropriate considering its participation in what is known as the 340-B drug program.

The program, whose name comes from its place in the Public Health Service Act, began in 1992 as part of veterans??? legislation. It was designed to provide drugs at reduced prices to hospitals and other health care facilities that treated the poor.

Soon, hospital consultants discovered a flaw in the law ??? that it was legal in some cases to take in the discounted drugs, charge insurers the full cost of the drugs and pocket the difference. The poor patients who were supposed to have benefited never saw the savings.

This led to a lobbying effort, which led to a dramatic expansion of the program under President Obama, which led to???DUH???what some have described as abuse of the program. According to a report in the Charlotte Observer, Duke University Hospital bought $65.8 million in discounted drugs through the 340-B program in 2012???a $48.3 million savings over regular price. It then sold those drugs for $135.5 million for a profit of $69.7 million.

Duke was far from the only hospital to cash in. Suddenly, a program that was designed to serve 90 safety-net hospitals was serving more than 10,000. Spending went from $1.1 billion in 1997 to more than $7 billion by 2013 and is projected to more than double to $16 billion by 2020. The Obama administration???s 2015 budget submission called for a 70 percent increase in funding for the program in one year.

The hospitals say they use these profits to address costs of charity care, but many of those that have profited the most actually participate the least in such care. Duke is, DUH, an example of this. It spent only about 2 percent of its budget on charity care last year, and only about 5 percent of its patients were uninsured. That???s hardly the profile of the kind of hospital the program was intended to benefit.

A study conducted by Avalere Health found roughly two-thirds of hospitals in the 340-B program treat less than the national average of charity patients, and, for a quarter of them, charity care makes up less 1 percent or less of total costs.

The hospitals claim they are not ripping off the system. The Duke hospital claims the savings are ???reinvested into facilities, technology upgrades and service expansion that benefit all patients.??? The University of North Carolina???s hospital says it uses the savings to ???provide free drugs to our thousands of charity care and uninsured patients and outpatients and extend limited resources to a broad patient population.???

But there is a growing sense the program is not working as intended and is not receiving the love and care it needs from Congress. A 2011 Government Accountability Office study found the program got inadequate oversight, and this year, a coalition of pharmacy companies released a report questioning the effectiveness of the program.

And now Congress is getting involved. Sen. Charles Grassley, R-Iowa, a leader in rooting out abuse of government programs by non-profits, has written to a bevy of hospitals requesting information on how they use the program and how much they profit from it.

The numbers he???s seen ???paint a stark picture of how hospitals are reaping sizeable 340-B discounts on drugs and then turning around and up-selling them to fully insured patients in order to maximize their spread,??? Grassley said. ???If ???non-profit??? hospitals are essentially profiting from the 340B program without passing those savings to its patients, then the 340-B program is not functioning as intended.???

Rep. Joe Pitts, R-Pa., chairman of the Health Subcommittee of the House Energy and Commerce Committee, recently led the first hearing on 340-B in the house in 10 years.

???To preserve the 340-B program and ensure that it is serving those who most need help, greater transparency is needed to increase the program???s accountability,??? Pitts said at the hearing.

Some in the Senate naturally want to expand the program to Medicare Part B. This, said Grace-Marie Turner, president of the Galen Institute, a leading health care policy group, would ???open the floodgates. This would be nothing more than a new form of price controls for drugs. Research into new drugs would likely be dramatically affected, just as Obamacare???s tax increases are shutting off research in the U.S. medical-device industry.???

They say it???s hard to ever kill a government program because the programs ???help people.??? This one appears to be helping hospitals, and we appear to have only the word of those hospitals they are doing the right thing by the American taxpayer with their profits.

It???s probably time for Congress to take a closer look.


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