A new report by the Wall Street Journal reveals abuse of the 340B hospital markup program is getting worse as hospitals and middlemen find new ways to profit off the program.
Why it matters: Big, tax-exempt hospitals and clinics abuse a little-known federal program to buy medicines at steep discounts and charge patients whatever they want. Abuse of 340B has become so profitable that cottage industries of for-profit companies are increasingly finding new ways to siphon money out of the program.
Vertical Integration Breeds Abuse
PBMs, insurers, pharmacies and providers are often owned by the same company. This kind of consolidation of multiple links in the supply chain is known as vertical integration, which can create financial incentives for middlemen to steer patients to preferred providers and pharmacies where they markup medicines to generate more profit. It’s a big reason why half of every dollar spent on brand medicines goes to PBMs, insurers, hospitals and other entities that don’t make medicines. These same corporations are also buying up for-profit companies that help hospitals maximize 340B markups.
New 340B “Drug Middlemen”
Adding to the middlemen madness, WSJ reports a new type of “drug middlemen” is helping companies manipulate loopholes in the 340B program to funnel even more savings away from uninsured and underserved patients. According to WSJ:
“A new breed of drug middlemen are pushing an unusual cost-saving strategy that lets their employer clients tap a federal program meant for hospitals that serve the poor.”
To make this work, these middlemen ensure a company’s employees become a “patient” at a participating 340B hospital. Due to vague guidance and poor oversight, hospitals oftentimes set their own rules when determining patient eligibility. This means hospitals may claim a patient without ever seeing them in person with as little as a “once-annual telehealth visit, via phone or videoconference, with someone from a 340B hospital.”
WSJ explains that “hospitals participate because it expands their customer base and they receive fees for dispensing prescriptions.” And not only are hospitals profiting by dispensing more medicines, they are also actively enrolling their own staff in this scheme.
“Blatant abuse”
This new scheme is another way to funnel savings on medicine intended for benefiting uninsured patients. Here is how one expert put it in the WSJ story:
“‘It is a blatant abuse of the program,’ said Adam Fein, president of the research group Drug Channels Institute.”
And while some employers think this scheme lowers their health care costs, it won’t in the long run. An analysis by IQVIA estimates these so-called “revenue sharing” models will increase employer costs – by an average of 14% – due to multiple factors including “increased medical care costs due to hospital markups.”
Abuse of the 340B program continues to grow, which in turn drives up costs for everyone. The more we learn about how hospitals and for-profit companies exploit 340B, the clearer the need is for federal reform.
Molly Jenkins
Molly Jenkins is a senior director of Public Affairs at PhRMA, where she leads communications on the 340B hospital markup program. Before joining PhRMA, she led issue advocacy and reputation campaigns at Purple Strategies. She also worked on Capitol Hill in serval different capacities, including leading communications for Rep. Greg Walden and as press secretary for the Energy and Commerce Committee. Molly has an M.A. in Health Communication and Media Relations from Johns Hopkins University and a B.A. in journalism from Texas Christian University.
Molly Jenkins
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Pharmacist speaking to patient at counter
340B
PBMs/Insurance
New report finds more abuse of 340B program by hospitals and drug middlemen
Pharmacist speaking to patient at counter