After mounting evidence from government watchdogs, academics, patient advocates, lawmakers, and concerned citizens that the safety-net 340B drug discount program was enriching hospitals at the expense of the low-income patients it was intended to serve, the American Hospital Association (AHA) finally announced new principles that they claim will ensure “good stewardship” of the program.

Created in 1992, the 340B program is supposed to help low-income patients without health insurance get access to substantially discounted outpatient drugs.  Unfortunately, hospitals have been using the program to enhance their own bottom line, driven up drug costs, and neglected to pass along the savings to poor patients.

The AHA’s “good stewardship” principles are a woefully inadequate response to address the pressing problems facing the program and ensure it ultimately helps patients it was meant to serve.  Hospitals simply “telling their story” about 340B by communicating the perceived value of how the program is used, disclosing the estimated savings achieved, and self-committing to conduct internal reviews will do nothing to reform the program.

The evidence of hospital abuses present in 340B drug discount program is extensive.  For example, a June 2018 Government Accountability Office (GAO) report found that less than half of hospitals they surveyed provided 340B discounts to uninsured, low-income patients at some or all of their contract pharmacies.  A June 2015 GAO report found that per beneficiary Medicare Part B drug spending, including cancer drugs, was substantially higher at 340B disproportionate share hospitals than at hospitals that do not utilize the safety-net drug program.  GAO stated that beneficiaries in the 340B hospitals were likely either prescribed more drugs or more expensive drugs.

A February 2014 Health and Human Services Inspector General (HHS OIG) report found several problems with the relationship between hospitals and their contract pharmacies.  The OIG found that these arrangements lead to drug diversion, in which the deeply discounted drugs were going to people who were not patients of the hospital and for duplicate discounts when both the 340B discount and the Medicaid rebate is applied to the same drug, which is statutorily prohibited.

Yet, four years later, a May 2018 Medicaid and CHIP Payment and Access Commission report found that weaknesses to prevent duplicate discounts remain and have grown more complex because of changes made to the 340B and Medicaid drug rebate programs, along with the exponential growth of contract pharmacies.

The lack of accountability, strict guidelines, and a clear definition of the type of patient that should have access to the 340B safety-net discount have allowed hospitals to take advantage of and led to explosive growth of the program.  Since 2010, the 340B program has expanded at an average annual rate of more than 20 percent, growing 125 percent from 2015 to 2017.

At the same time, hospital charity care rates have dropped.  From 2012 to 2016, uncompensated care went from $45.9 billion to $38.3 billion of total expenses, or from 6.1 percent to 4.3 percent.  A study published in the February 8, 2018, New England Journal of Medicine found that the financial gains hospitals receive from 340B did not translate to improved access to care or reduced mortality rates among low-income patients.

To address the abuses in the 340B drug discount program there must be legislation to provide concrete requirements such as clear standards, guidelines, and government oversight that ensure low-income, uninsured patients are benefiting from the safety net program rather than serving as an ATM to pump up hospitals’ coffers. The guidelines proposed by AHA serve as a PR tactic instead of addressing accountability issues, fixing the patient definition, and tackling the explosive growth of the program.

There are positive efforts in Congress to fix the 340B program.  H.R. 4710, the 340B PAUSE Act, by Reps. Larry Bucshon (R-Ind.) and Scott Peters (D-Calif.), and S. 2312, the HELP ACT, authored by Sen. Bill Cassidy (R-La.) would mandate that hospitals report 340B reimbursements, patient insurance status, and charity care rates, which would go a long way to strengthen reporting requirements to help make sure this critical program is sustainable for the long term.

Without legislative fixes, the 340B program will continue to enrich hospitals at the expense of low-income patients.  Lawmakers should ignore the AHA’s hollow “principles” and continue their efforts in the lame duck session and the 116th Congress to help bring the program back to its intent of serving low-income, uninsured Americans.