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Drug discount programs have become wasteful — they don’t help patients

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There are many reasons why the cost of health care is rising, including massive and unchecked federal programs that have proliferated throughout the entire health-care system. The 340B drug discount program is among those that must be examined and reined in.

The 340B program was created in 1992 to help certain health care safety-net providers that serve a large number of uninsured or otherwise vulnerable patients reduce prescription drug costs by requiring drug manufacturers to provide deep discounts on outpatient medicine.

{mosads}The program provides these drugs to patients through non-profit local community health centers; hospitals that serve a disproportionate share of the poor; children’s hospitals; clinics for Indian Health, HIV/AIDS, Black Lung, Hemophilia, and Tuberculosis and, free-standing cancer hospitals.


Congress intended that the savings from the discounted drugs would allow the “covered entities to stretch scarce Federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

But, like many government programs that were designed to help the poor and vulnerable, 340B has become bloated and wasteful, and, even worse, often fails to serve patient’s best interests. Equally concerning is the fact that abuse within the program has led to steep consequences for both physicians and local health care communities.

A June 2015 Government Accountability Office (GAO) report found there is “a financial incentive at hospitals participating in the 340B program to prescribe more drugs or more expensive drugs to Medicare beneficiaries.”

Furthermore, GAO found that while the average number of oncology patients served in an outpatient setting increased for all hospital groups investigated from 2008 to 2012, the largest increase, 45 percent, was seen in 340B disproportionate share hospitals (DHS). Previous investigations have found that some hospitals are pocketing the savings and failing to use that money to provide charity care for their communities, as the program had originally intended.

Today, hospitals represent 80 percent of sales associated with the 340B drug discount program, while agreements with for-profit pharmacies are being signed at an exponential rate. From 2010-2014, the number of unique pharmacies serving as 340B contract pharmacies increased by 154 percent, even though the 340B law did not provide the authority to contract with pharmacies.

The bad actors have used their padded bottom lines to expand, leading to a record rate of consolidation of local health facilities. Fewer health care choices mean less access to life-saving care and medicine, as well as higher costs for patients.

It should be disturbing to lawmakers and taxpayers that a program originally intended to stretch federal resources is instead being exploited to capture as much money as possible for non-related purposes.

It is time for Congress to reform and modernize the 340B program and restore its original intent of helping uninsured and indigent patients get access to low cost pharmaceuticals, instead of being an ATM for hospitals and contract pharmacies to boost their bottom lines.

First, a 340B program-eligible patient must be clearly defined; without such clarity, hospitals and pharmacies will continue to abuse the system.

Another important reform would be a clearer meaning of charity care, which makes a hospital eligible for the drug discounts. A July 2017 Politico analysis found that during the Obama administration, the top seven ranked hospitals, more than half of which utilize the 340B program, cut charity care by 35 percent between 2013 and 2015, while their combined revenue increased by $4.5 billion annually.

Hospitals must also begin to be transparent about how they are spending the savings under the 340B discount program to help eligible patients, as there is no requirement for them to do so under current law.

There is some good news for taxpayers and patients: The House Energy and Commerce Committee is looking more deeply into the program. On July 18, 2017, the committee held a hearing on the Health Resources and Services Administration’s oversight of 340B and on September 8th, the committee sent letters to several hospitals asking for information to “broaden the committee’s understanding of how program savings are calculated and used by covered entities to help patients.”

The committee’s activities must lead to much-needed reforms that will return the program back to its original intent and purpose. Accountability, clarity, and transparency are essential to keep the 340B program from going further off the rails.

Elizabeth Wright is the director of health and science policy at Citizens Against Government Waste (CAGW), about the 340B drug discount program. CAGW is a member of the AIR340B Coalition, a coalition fighting for necessary reforms to the 340B drug discount program

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