Hospitals Found Taking Advantage of Federal Drug Discount Program Designed to Benefit Consumers

By Consumers for Quality Care, on January 18, 2023

A decades-old federal drug program, 340B, is designed to offer prescription drugs at lower prices to low-income consumers, but now large nonprofit hospital systems are taking advantage of the law’s loopholes to turn massive profits, according to The Wall Street Journal.

340B requires pharmaceutical manufacturers to sell drugs to participating hospitals at reduced prices. However, loopholes in the law allow large hospitals in urban areas to qualify as “rural referral centers.” This allows them to purchase drugs at reduced prices, then sell them to consumers and their insurers at market value or even higher, oftentimes in wealthier areas.

One hospital that took advantage of this loophole is the well-known Cleveland Clinic flagship hospital, which reported $1.35 billion in net income in 2021, yet whose charity care provided to consumers in financial need accounted for less than 2 percent of its patient revenue.

Peter DeGolia, a Cleveland area geriatrician, highlighted a recent story where a patient could not afford to refill their medication at the Cleveland Clinic because the Clinic did not pass their savings on to the consumer, a fact that Dr. DeGolia called “shocking.”

According to the Health Resources and Services Administration (HRSA), there are 2,600 nonprofit and government hospitals that participate in 340B, which combined spent at least $38 billion on discounted drugs in 2021. Additionally, once a hospital is enrolled in 340B, it can include all affiliated clinics and offices. This means there are nearly 29,000 facilities around the country enrolled in 340B. The original 1992 program was enacted with little enforcement mechanisms. It does not require hospitals to pass the savings to patients, insurers, or Medicare, there are no price limit rules, and there is no required reporting.

Robert Kocher, an Obama White House health adviser who was involved in creating the Affordable Care Act, which expanded 340B, stated that the intent of this provision was to help rural hospitals. “It would not be our intention to have a medical center in Cleveland, Boston or Chicago be included,” said Kocher.

CQC is concerned about nonprofit hospital systems taking advantage of government programs designed to benefit low-income consumers and families. Nonprofit hospitals need to be held accountable to better serve their communities and deliver care for patients who need it most. Lawmakers should look at the 340B program to ensure the law is helping save consumers money rather than helping hospital systems boost their profits.