By Dan Crippen
A federal court recently blocked the Trump administration from moving forward with a proposed pilot program that could have saved patients, taxpayers, and employers billions of dollars.
But fortunately, the administration isn't giving up. Last month, it began the process of proposing a similar, legally airtight one. This time, if the administration dots every i and crosses every t to comply with the Administrative Procedures Act, it can finally prevent hospitals from abusing what has quietly become one of the federal government's largest healthcare programs.
Congress created that program, known as 340B, in 1992 to help safety-net, non-profit hospitals and clinics offer more charity care to poor Americans. The program requires drug manufacturers to provide enrolled hospitals and other "covered entities" -- mainly safety-net clinics such as federally qualified community health centers -- with steep discounts on outpatient drugs dispensed or administered to eligible patients.
Lawmakers initially anticipated that roughly 90 hospitals would participate. But today, over 2,600 hospitals are enrolled in 340B -- almost 30 times the initial projections. Some qualify as "rural" even though they're mostly located in urban neighborhoods.
Hospitals have also acquired off-site medical practices to qualify for more 340B drugs. Between 2013 and 2021, the number of off-site outpatient clinics enrolled in 340B grew from about 6,100 to nearly 28,000. These "child sites" let hospital systems pull in more prescriptions under the program -- even when those sites serve insured patients in higher-income neighborhoods.
340B also inflates Medicare Part B spending. The Government Accountability Office concluded that hospitals can maximize their revenue by using pricier medicines -- even when less expensive ones are just as effective -- and selling them at a markup.
Meanwhile, employer-sponsored health plans spend an extra $36 billion annually on hospital care, largely due to those markups and consolidation fueled by the 340B program. That inflates insurance premiums for Americans covered through their workplaces.
These are just estimates. Nobody knows the precise costs of 340B or exactly how much each hospital and clinic utilizes the program; its oversight mechanism is broken. Even after nearly 35 years, there's no definition of eligible patients -- they can be privately insured -- and HRSA collects virtually no useful data.
Federal law stipulates that drug companies are required to offer either 340B discounted pricing to participating hospitals and pharmacies or rebates to state Medicaid programs when a drug is dispensed to Medicaid beneficiaries -- but not both. Similarly, drug companies must offer 340B discounted pricing to participating covered entities or the "maximum fair price" refunds that the government has negotiated on Medicare Part D drugs through the Inflation Reduction Act's price negotiation program -- but not both.
In practice, though, there's no consistent way to prevent double-dipping.
That's why HRSA proposed the now-withdrawn pilot program. It would have allowed manufacturers of the IRA's first 10 price-negotiated drugs to offer hospitals "after-the-fact" rebates instead of upfront discounts, as long as hospitals provided basic data to identify the prescription and demonstrate that a drug qualifies for 340B pricing.
Qualifying hospitals would have still gotten the savings they're legitimately entitled to. But manufacturers could have used that data to avoid paying duplicate maximum fair price refunds to pharmacies. That data would have also made it easier for states to obtain all the Medicaid rebates they are due while preventing illegal double-dipping -- addressing a longstanding concern raised by the Office of Inspector General at the Department of Health and Human Services.
Fortunately, the administration seems determined to propose a new, legally ironclad pilot that prevents 340B from drifting farther from its purpose -- and harming poor patients, employers, and taxpayers in the process.
Dan Crippen is a former director of the Congressional Budget Office. This piece originally ran in The Well News.
