Bitter pill: Cassidy-Graham Obamacare reform bill fails to reform 340B program

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Medication for a prescription is separated and counted. (U.S. Air Force photo by Airman 1st Class Joseph Pick)

The healthcare reform legislation proposed by Sen. William M. Cassidy (R.-La.) and Sen. Lindsey O. Graham (R.-S.C.) is a bill that fails to address the actual causes of high premiums, high deductibles and it leaves in places many of the programs President Barack Obama created and or expanded that have further corrupted our already inefficient healthcare system.

One program that has grown like cancer is the 340B program.

Never heard of it? Just Google “340B + jobs” and check out the veritable boomtown this program has launched.

The 340B Drug Discount Program illustrates an iron law of government. Namely, those good intentions are no guarantee of good results. Intended to benefit lower income and underserved patients, the absence of adequate safeguards on the drug discount program has instead led to decades of abuse as hospitals enrich themselves at the expense of patients and taxpayers.

Passed in 1992 as part of the Veteran Health Care Act, the 340B program compels pharmaceutical companies to sell discounted drugs to health care clinics and pharmacies serving lower income and underserved patients. The drug companies were allowed to “voluntarily” participate in 340B if they wanted their drugs to be eligible for purchase under Medicaid.

In 2003 eligibility of the program was expanded by the Medicare Modernization Act. With expanded access to the program came expanded opportunities for abuse thanks to the failure to at least require that the discounted price be passed on to intended consumers, if not to consider that this method for helping the poor access drugs might simply be fatally flawed. Hospitals gamed the system and took advantage of the program to purchase drugs discounted by 20-50 percent only to then charge patients the full price and pocket the difference as profit.

A consulting firm called Talyst even developed a good line of business teaching informed hospitals and pharmacies how they could take advantage of 340B to reap huge profits on the resale of discounted drugs.

Even though it was aimed at assisting small community hospitals that served patients that might otherwise fall through the cracks, the 340B program was exploited by large hospitals such as the Duke University Health System. In 2012, Duke University’s DukeHealth generated substantial revenue by purchasing $66 million in drugs through the program, at a savings of $48 million, only to turn around and sell them to patients for $136 million. The $70 million profit it realized from the 340B drugs came largely at the expense of taxpayers and did nothing to accomplish the program’s original goals.

Lacking any system of accountability, the 340B program allows hospitals and health clinics to take advantage of the public’s charitable instincts. It absurdly relies on beneficiaries to “police themselves,” according to a report from the Government Accountability Office.

One result of large hospitals gaming 340B has been to make cancer treatment more expensive. A study by the Community Oncology Alliance documents how the proliferation of hospital participation in 340B resulted in the consolidation of cancer care in larger, more expensive 340B hospitals rather than physician-owned community oncology clinics.

Since 2005, the number of hospitals participating in 340B has grown by 367 percent.

The program was expanded again under Obamacare, which allowed pharmacies to profit from participating in 340B while also increasing the number of participating hospitals from 14,000 to 20,000.

Don’t kid yourself, members of Congress on both sides of the aisle are willing to help the hospitals pilfer the program.  Rep. Cathy McMorris Rodgers (R.-Wash.) has joined hands with liberal members like Rep. Bobby Rush (D.-Ill.) seeking to extend the abuse!

Despite the opposition of special interests that have made out like bandits thanks to 340B, like the American Hospital Association and other representatives of the hospital industry, the Centers for Medicare & Medicaid Services (CMS) is pushing much-needed reforms. They have proposed a rule reducing Medicare reimbursement payments to the hospitals benefiting from 340B to redistribute the savings elsewhere so that they finally reach patients. COA estimates the cuts will save seniors $180 million in drug costs per year.Congress was probably driven mostly by good intentions in creating the 340B program, but it failed to consider the incentives it was creating and thus failed to include needed safeguards against abuse. Much needed reforms can refocus 340B to serve its original purpose while closing an enormous crony capitalist benefit and arbitrage opportunity for mega-hospitals. Taxpayers and patients deserve better.

Congress was probably driven mostly by good intentions in creating the 340B program, but it failed to consider the incentives it was creating and thus failed to include needed safeguards against abuse. Much needed reforms can refocus 340B to serve its original purpose while closing an enormous crony capitalist benefit and arbitrage opportunity for mega-hospitals. Taxpayers and patients deserve better.

[Edward Woodson is a lawyer and now host of the nationally syndicated Edward Woodson Show, which airs daily from 3 to 6 pm EST on gcnlive.com.]