You would never pay a restaurant bill without an itemized check. And if that bill charged you twice for the same steak, you would dispute it on the spot.
Unfortunately, federal programs don’t always operate using this kind of common sense. In fact, the 340B drug discount program, which moves more than $100 billion a year, has never worked that way.
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So it is refreshing that the Trump administration is proposing to change that by asking participating hospitals to itemize their invoices before discounts are paid.
Paying a 340B claim without claims-level data is like settling that tab sight unseen, right down to the risk of being charged twice for the same steak, which in 340B is the same drug getting discounted under two programs at once. The principle is the same either way: show your work before the money moves.
Some nonprofit hospitals mark up steeply discounted drugs by hundreds of percent while patients pay full cost-sharing on those same drugs. Under current rules, almost no one can see which hospitals are doing what.
That murkiness is the heart of the problem, and it helps us to understand how we got here. Congress created 340B in 1992 to help safety-net providers serve low-income patients by requiring drug manufacturers to sell outpatient drugs at steep discounts. Lawmakers expected providers to pass the savings to patients or reinvest them in charity care.
But Congress never wrote strict enrollment limits and never required hospitals to show where the savings actually went. Enrollment soared. It was originally estimated that about 90 hospitals would enroll. Today, over half of all U.S. hospitals participate.
With no requirement to route savings to patients and no window into how the money is used, the results were predictable. Hospitals buy discounted drugs and resell them for 10 times or more what they paid. In Michigan, 340B hospitals report nearly 50% higher revenue than non-340B hospitals, yet provide 34% less charity care on average. In Virginia, The New York Times found one system used 340B to generate as much as $100 million a year in profit while slashing staff and supplies at facilities serving low-income communities. Across the country, the windfall flows to reserves and executive pay rather than patients. In Michigan, the average 340B hospital’s investment portfolio is more than twice as large as a non-340B hospital.
But almost everything we know about this abuse came from outside researchers and journalists who went looking for it, not from any disclosure the program requires. Reforming the 340B program has become a top concern of this administration and Congress. The fixes currently being considered are not spending mandates, but transparency and accountability measures. Two stand out.
The first is the Department of Health and Human Services’ revised 340B Rebate Model Pilot. It targets duplicate discounts, cases where the same unit of a drug is improperly discounted twice under two programs meant to be mutually exclusive. The fix would have hospitals pay for a drug, dispense it, then submit a validated claim for a rebate, the same way nearly every other health claim is already processed, instead of the current upfront discount policy.
Claims from hospital lobbyists that documentation would bankrupt hospitals on a payment model already in use are laughable and a ploy to continue lining the already-rich pockets of hospital executives instead of helping patients in need.
The second is H.R. 9504, the Tax Exempt Hospital Transparency Act. Introduced by Rep. Greg Murphy (R-NC), it was recently advanced by the same House Ways and Means Committee that pressed hospital CEOs this past spring over the prices they charge patients. The bill would require tax-exempt hospitals to report — on the forms they already file — the charity care they provided and how many patients who applied for financial assistance were approved or denied. It dictates nothing about how a hospital spends a dollar. It simply makes them show their work.
If hospitals are in fact providing robust charity care, the bill would only work to boost their reputation. We won’t know until the bill becomes law, which is why Congress should pass it quickly.
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Neither of these reforms tells a hospital how to run its business; both simply end the guessing. Once it’s transparent and 340B dollars reach the patients the program was built for, we can have an honest debate about what reforms come next.
Congress created 340B with good intentions. But good intentions do not guarantee good results, and right now we cannot measure the results. Before we argue about how to fix this program, we should be able to see into it. Transparency and accountability are where that starts.
Joel C. White is president of the Council for Affordable Health Coverage.
