Maine Hospitals Should Be Examined for Medicare Rx Drug Program Profiteering: Roy Matthews

Since the 1990s, low-income and Medicare patients have depended on the 340B program to pay for drugs and medications at discounted costs. Now, hospitals are abusing that program to the detriment of those without a financial safety net. 

The 340B Medicare program provides hospitals and clinics with discounted medical drugs for Medicare patients. While the program targets hospitals where a majority of patients are on Medicare, there is no prohibition on reselling these medications, nor are there reporting requirements to show that they were used to benefit Medicare patients. As a result, for the past decade hospitals have been using the 340B program to purchase medications at a heavy discount, only to resell those same drugs to commercial and sometimes, government buyers. In Maine, more than 26 percent of the population enrolled in Medicare are being denied a fair shot at affordable medications. Hospitals using the program as a moneymaker are leaving low-income patients behind. It is essential that policymakers change the criteria for hospitals to receive drugs through the 340B program.

Currently, hospitals account for 87 percent of drug sales under the 340B program. In addition to receiving a massive amount of discounted drugs, most hospitals’ tax-exempt status allow them to sell off these medications for a huge profit. To qualify to participate in the 340B program, a hospital must serve a certain threshold of Medicare patients. This creates an incentive for hospitals to keep serving only a certain amount of Medicare patients at that threshold in order to continue to receive discounted drugs. 

Hospitals have milked this system to the tune of $50 billion in 2021, so it’s no wonder that the program doubles in size every three to four years. Though medications have actually become more expensive and out of reach for many Medicare patients, hospitals in some of the country’s poorest communities have made billions of dollars by strategically serving the minimum number of Medicare patients to qualify for the program. 

The goal of the 340B program is to give Medicare patients that cannot afford their medications or hospital bills another way to pay for their care. But the abuse of the 340B program limits their options. If a hospital enrolls in the 340B program, drug discounts become available for satellite clinics and other service centers that the hospital operates. As long as one of these satellite clinics continues to meet the minimum Medicare patient threshold, the entire hospital system remains eligible for the 340B program. Cheaper prices at larger, hospital-owned clinics means fewer options for patients as other clinics cannot compete with their prices. There is also no limit to the number of pharmacies, clinics, and satellite facilities that 340B-approved hospitals can contract with. Unsurprisingly, 73 percent of contract pharmacies are run by larger, for-profit chains enrolled in the 340B program.

To make the 340B program work for low-income Medicare patients, we need to require more transparency from hospitals using the 340B program. Currently, entities covered under the 340B program are not required to update and maintain records for auditing purposes. This must change, as the Health Resources and Services Administration (HRSA) should be able to audit entities that have been identified as potentially exploiting the 340B program. 

The sheer threat of an audit is not enough to ensure compliance, as the payout for utilizing the 340B program is simply too high for hospitals and other entities to be disincentivized from serving the bare minimum Medicare patients. The HRSA should give teeth to these threats by auditing the largest entities, like the Cleveland Clinic, that have been accused of abusing the 340B discounts. 

The 340B program must be reoriented towards its original purpose: serving low-income patients and Medicare recipients. Allowing large hospitals and other entities to continue to exploit the system, increasing their profits by fueling hospital consolidation and using taxpayer money to resell discounted medications, does nothing to ensure an adequate healthcare safety net. There are 27 hospitals in Maine alone that are currently enrolled in the 340B program. They and those like them across the nation must be examined to ensure proper compliance. Policymakers should reform the patient threshold for the 340B program and make covered entities open their books.