Data shows tax-exempt hospital profit-seeking behavior, not drug prices, is driving explosive 340B expansion

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Playing the blame game: Big hospitals are once again attempting to evade accountability for their role in driving dramatic increases in the size of the 340B program, which costs patients and taxpayers billions each year. Due in large part to unnecessary program expansion by hospitals trying to maximize their profits, 340B is now an $81.4 billion program. This is 23% higher than last year and nine times the program’s size in 2014.

The data big hospital systems don’t want you to see show that this growth is driven by their abuse of the program, and not by market trends or medicine costs. The program initially served nearly 100 safety-net hospitals and now serves more than half of all hospitals. It is now the second largest federal drug program (soon to be largest), and yet there is nearly zero oversight and little evidence that patients benefit. Until we fix 340B, big tax-exempt hospitals and clinics will continue to exploit the program, increasing costs for patients, employers and taxpayers.

Here’s what the big hospital lobby isn’t telling you.

MYTH #1: Drug prices drive 340B program growth.
FACT: Hospital exploitation of the 340B program.

Independent research indicates that 340B growth is driven by abusive hospital behavior, such as program overutilization and deliberate expansion of 340B eligibility. Data shows that 340B entities are purchasing more medicines at the 340B price, which can be as low as a penny, and then they can mark them up by thousands of dollars or more.
Increasing hospital vertical integration, aimed at driving profit and not responding to patient demand, is also further expanding 340B, according to the Congressional Budget Office.

MYTH #2: The 340B program lowers costs for patients.
FACT: Patients often pay more at 340B hospitals, and taxpayers front billions in hidden costs.

Drug spending is nearly 200% higher per patient at 340B hospitals compared to non-340B hospitals.
Taxpayers face nearly $20 billion annually in increased costs due to lost Medicaid and Medicare rebates as a result of 340B.

MYTH 3: 340B increases charity care.
Fact: 340B does not increase charity care.

Studies show that the 340B program does not lead to hospitals providing more uncompensated care. In fact, data reveals 340B hospitals often expand into wealthier areas to pad their profits, not service those most in need.
Despite billions in 340B revenue, 65% of 340B hospitals provide less charity care than the national average.

MYTH 4: 340B ensures community benefit and serves vulnerable communities.
Fact: The program has shifted toward affluent areas and is a profit center for big hospitals and clinics and their for-profit partners.

Hospitals and clinics, along with their for-profit partners, exploit 340B by leveraging contract pharmacy networks and child sites in affluent areas - 75% of these arrangements are with large for-profit chains, many in wealthy ZIP codes and nearly 60% of affiliated outpatient facilities are located in higher-income areas than their parent hospital, undermining the program’s intent to serve underserved communities.
11 of the 20 top Fortune 100 companies profit off 340B.

The bottom line: Growth without guardrails has created a system laded with fraud and abuse. 340B has dramatically veered from its original intent and needs to be reformed. Without reform, taxpayers, patients and employers will continue footing the bill and vulnerable communities will continue to face barriers to care. Policymakers should stop accepting misleading rhetoric from hospitals and start demanding transparency and reform.

Learn more at PhRMA.org/340B.

Eliza Maciag

Eliza Maciag is a senior manager on PhRMA’s Public Affairs team, focusing on 340B, PBMs and the cost and value of medicines. Prior to joining PhRMA, she worked in the Strategic Communications department at the Investment Company Institute, where she led rapid response initiatives and grassroots campaigns. Eliza holds a bachelor’s degree in political science from Trinity College (CT) and a master’s degree from the Graduate School of Political Management at George Washington University.

Originally from Connecticut, Eliza is based in Washington, D.C. Outside of work, she enjoys golfing, biking, skiing and swapping book recommendations.

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