Fixing drug program can make big difference for struggling patients

The COVID-19 pandemic has made the issue of health care access more urgent than ever. Yet, at a time of deep divisions in Washington, chances for major reform are slim.

But the Biden administration doesn’t need an ambitious package of reforms to make health care more affordable. Federal officials could instead focus on fixing dysfunctional programs already on the books.

A drug discount program known as 340B should be high on their list. Its original goal was to make brandname drugs more affordable for uninsured and low-income populations. Instead, in recent years, pharmacies and hospitals have abused 340B discounts to boost their own profit margins.

Cleaning up this wellmeaning program would go a long way towards improving health care access.

Passed by Congress in 1992, the program requires drug companies that participate in Medicaid to offer discounts to safety-net providers that serve underprivileged patients. By providing 25 to 50% savings on drug purchases, the aim was to make it easier for vulnerable patients to access innovative medicines.

Unfortunately, the intent hasn’t quite aligned with the result. Built-in flaws in the program’s design have unintentionally allowed 340B to become a revenue-generator for for-profit health care providers and companies.

For example, the eligibility requirements are so loose that hospitals can take part in 340B even if they serve relatively few underprivileged patients. This has led to extraordinary growth in participation in recent years. Whereas just 143 hospitals took part in 340B in 2002, by last year, 2,580 did.

Providers can also accept 340B discounts regardless of whether they use the price reductions to help low-income or uninsured patients. In other words, a hospital can obtain an expensive medicine at a dramatically discounted rate, charge the patient’s insurer the full sticker-price, and pocket the difference.

Hospitals and clinics, meanwhile, aren’t the only ones using the program for financial gain. A federal policy change in 2010 allowed hospitals to contract with an unlimited number of outside pharmacies to fill 340B prescriptions.

The hospitals and pharmacies split the profit. This arrangement proved so attractive that by 2020, hospitals had entered more than 109,000 contract arrangements with pharmacies to fill prescriptions under the program.

The average profit margin for 340B drugs is 72%, according to a study by the Berkeley Research Group, which also found that in 2018 alone, hospitals and pharmacies together made $13 billion in 340B profits. The bulk of the pharmacy take goes to massive corporations like CVS and Walgreens.

It would be one thing if hospitals actually passed their drug discounts on to patients. But in a recent analysis by the Government Accountability Office, nearly half of 340B providers offered no discounts to any patients at their contract pharmacies.

The initial goal of 340B — to help the most vulnerable patients afford medicine — remains as worthwhile as ever. In fact, now that COVID-19 has upended the finances of millions of Americans, the program is even more essential.

With mere tweaks, lawmakers and administration officials can make 340B work better for patients. Some guard rails on which institutions can participate, plus better oversight, would ensure that only institutions actually doing charity work could get discounts, and that they directly benefit patients.

Such changes would not be difficult to implement, nor would they inspire much partisan controversy. But they would make an enormous difference for struggling Americans.