BUSTED: This Study Lays Bare How Hospitals Are Driving Up Healthcare Costs

Jerry Rogers | Founder, Six Degrees Project

Long considered one of the healthcare industry’s dirty secrets, the Medicare 340B program is under new scrutiny after a major study revealed that “hospitals that save money through 340B program discounts often don’t use those savings to improve care for low-income and underserved patients.” They are padding hospital profits while driving up healthcare costs.

In 1992, Congress enacted the 340B Drug Discount Program, compelling drug manufacturers to provide certain outpatient drugs to specific health-care organizations at a discounted rate. The program was designed to benefit low-income patients, veterans and their families. However, the Affordable Care Act (ACA) — known as Obamacare — expanded 340B by growing the number (and kind) of facilities eligible to participate in the program.

The study, from Harvard Medical School and New York University scholars and appearing in the prestigious “New England Journal of Medicine,” found that “hospitals eligible for 340B discounts administered more drugs, and also increased their ability to administer more drugs by absorbing physician practices.” These hospitals have been altering their care to qualify for subsidies to support their bottom line, but not their patients. The program requires the discounts for hospitals that serve poorer patients, but allows these hospitals to pocket the difference, rather than passing the savings on to patients.

Included in the findings: 340B eligible hospitals are employing an excessive number of niche specialists in fields that happen, due to how arcane regulations are written, to be especially lucrative for siphoning subsidies. These conspicuous droves of specialists aren’t even treating poorer patients. Despite having up to 900% more of certain types of specialists, low-income patients were treated in those areas of medicine at lower rates than the general population.

The study explains this finding “is consistent with the financial incentives of hospitals and with evidence that 340B-participating hospitals have increasingly affiliated with hematology-oncology practices serving affluent communities.”

In other words, hospitals become eligible for 340B from their low-income patients, then expand to satellite facilities in nearby, affluent neighborhoods to make a huge profit on half-off drugs their rich patients’ pay for in full.

Likewise, the study’s senior author, Sunita Desai, Ph.D., said: “We found evidence of hospitals behaving in ways that would generate profits, by building their outpatient capacity to administer drugs. But we did not see any evidence that hospitals are investing those profits in safety-net clinics, expanding access to care for low-income Medicare patients, or improving mortality in their local communities as the program intends.”

It’s so opportunist, you almost have to admire the ingenious creativity. In a normal, well-functioning market, that same profit motive would have been harnessed to cut costs, improve services, or bring some innovation to the system. But with the government’s enormous position in the sector it creates harmful distortions in incentives that negatively impact the entire healthcare system.

Unfortunately, the abuse of the 340B program by these hospitals results in higher costs for the rest of us as we, collectively, pay tens-of-billions of dollars more for our medicine. We pay higher prices for our prescription drugs, and those the program is intended to help – the low-income patients –  see no quality improvements in their care. The study found no evidence that low-income patients were receiving better care or experiencing better health outcomes or lower mortality.

“We found no evidence of hospitals using the surplus monetary resources generated from administering discounted drugs to invest in safety-net providers, provide more inpatient care to low-income patients, or enhance care for low-income groups,” the authors write. Any facade that 340B is about anything other than padding hospital profits is gone.

Hospitals and their lobbyists have abused 340B to make themselves wealthier. The program has grown outside of its original purpose of helping the poor and uninsured — this is true, despite the promise that the Obamacare would vastly reduce the numbers of uninsured.  Reforming the 340B is a major defeat for Washington’s political class.

The Trump White House has decided to improve the 340B program, and the Center for Medicare and Medicaid Services (CMS) has announced that it would reform the payment rate in the program. Good news for patients.

This reform is a definite “drain the swamp” moment.

Jerry Rogers is the founder of Capitol Allies, an independent, nonpartisan effort that promotes free enterprise. He’s the co-host of The LangerCast on the RELM Network. Twitter: @CapitolAllies.


The views and opinions expressed in this commentary are those of the author and do not reflect the official position of The Daily Caller.

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