Total healthcare spending by the American people is projected to reach at least $5.9 trillion this year. Over $2 trillion of that is estimated to be spent by the federal government on programs such as Medicare, Medicaid, and veterans’ healthcare. That is approximately 30% of all federal spending—thus making healthcare one of the biggest items in the federal budget and a major reason why the federal debt is increasing by almost $1 trillion every three months! With healthcare constituting such a large part of the federal budget— and with healthcare costs increasing for millions of Americans thanks to the expiration of the 2021 Obamacare subsidies—Congress must eliminate wasteful healthcare spending.
A good place to start is those programs that were passed with good intentions, but which actually benefit large medical businesses at the expense of patients and smaller providers. One such program is Section 340B of the Public Health Service Act. Created in 1992, Section 340B requires drug companies to provide pharmaceuticals to “qualified entities” such as federal health centers and Disproportionate Share Hospitals (DSH) at reduced rates. DSH are hospitals that provide a “disproportionate” share of care to uninsured parents who cannot afford private healthcare but do not qualify for Medicare, Medicaid, or other government programs.
Even though 340B hospitals buy pharmaceuticals at a discounted rate, they can be reimbursed as if they had paid full price. There is one problem with this system: while Congress intended the qualified entities to use these savings to cover the costs of providing care to the uninsured, there is no statutory requirement that they do so. As a result, hospitals are using their Section 340B savings to boost their profits and further increase healthcare costs.
Another unintended consequence of Section 340B is that it encourages concentration in the hospital industry. This is because a hospital that owns a qualifying entity can provide Section 340B services at any of their facilities. This means that hospitals can use their most expensive facilities to provide Section 340B services. A new study by the Berkeley Research Group (BRG) sheds new light on the affects of Section 340B.
According to the study, the percentage of pharmaceuticals administered under the Medicare Part B prescription drug program doubled over the past decade. Yet, the number of Medicare Part B medicines administered in physicians’ offices and non-Section 340B facilities has declined. This is one reason Medicare Part B premiums are increasing. The BRG study reports that the number of breast cancer claims from Section 340B hospitals more than doubled from 23.1% in 2012 to 49% in 2022. Simultaneously, there was a decrease in breast cancer claims from physician offices. The percentage of treatments for multiple myeloma done at Section 340B hospitals went from 23% to 49% in the same period as the increase in breast cancer claims.
Section 340B abuse is not just increasing costs—it is harming patients. According to a study by the research firm Milliman, patients in hospitals that participate in Section 340B spend appropriately 30% more on prescription drugs than patients in non-Section 340B facilities! Further evidence that Section 340B has done more to increase the market share of large hospitals than to help low-income and uninsured Americans is provided by a report from the non-partisan Congressional Budget Office (CBO). The report found that increased prescription drug prices were responsible for only a third of the increase in Section 340B spending. The rest of the increase is due to hospitals acquiring off-site clinics and pharmacies.
Congress needs to fix Section 340B to end abuse of the program. One way to do this is to add a requirement that participating hospitals spend the Section 340B savings providing care to low-income or uninsured Americans. Those who object that this imposes a mandate on hospitals should remember that participation in 340B is strictly voluntary—the program is not intended to help hospitals line their pockets. Reforming Section 340B would also remove incentives for big hospitals to acquire small facilities and independent medical practices created by the current program.
Congress is likely to eventually pass legislation expanding the Obamacare subsidies. Adding Section 340B reform to this, or any other healthcare bill considered by Congress this year, would be a victory for all Americans, but especially for the low-income, uninsured, and independent medical practices.
