The House Energy and Commerce Committee’s Subcommittee on Health is holding a series of hearings on health care affordability, each one focusing on a different aspect of the health care system. The hearing held on March 18th of this year addressed health care providers, and included testimony from representatives of medical groups, patient advocates, and hospital administrators.
Witnesses claimed that one of the biggest reasons for the increase in health care costs was consolidation. This is the result of large hospitals buying smaller hospitals, clinics, and private practices. The link between consolidation and increased prices is supported by a large body of research.
One factor behind this consolidation is the Section 340B drug pricing program. Section 340B of the Public Health Service Act was intended to help Disproportionate Share Hospitals (DSH) (hospitals that provide a disproportionate amount of care to low-income and uninsured patients) and federally funded health clinics. Section 340B enables these qualified entities to purchase pharmaceuticals at a discount, while still being reimbursed as if they paid full price.
Congress intended for Section 340B qualified entities to use this cost savings to provide more services to low-income and uninsured Americans. However, this is not actually required by law. This is why an analysis published in the New England Journal of Medicine found no evidence that hospitals invest their 340B savings into safety-net care.
The law also provides that any hospital system that owns one or more Section 340B eligible hospital can seek reimbursement for treatments administered at any facility owned by the hospital. This creates an incentive for larger hospitals to purchase smaller hospitals, community health care centers, and private practices in order to “game” Section 340B to maximize their profits. The result is that patients have fewer community-based health care options. Instead, patients are pushed to seek care at more expensive facilities. This is one reason why the percentage of physicians who are part of a larger hospital network grew from less than 30% in 2012 to approximately 47% in 2024.
The increase in concentration has contributed to the increase in health care costs. For example, employer sponsored health care plans pay twice as much for a cancer infusion treatment administered in a hospital than for one given in a physician’s office—even though it involves the exact same procedure and the exact same drug! The growth of consolidation makes it difficult for plans and patients to select the cheaper option.
Some might say the increase in consolidation as a result of Section 340B is an acceptable cost for improving the care available to low-income Americans. The problem with this argument is it is unsupported by the facts. An Agency for Healthcare Research and Quality (AHRQ)-funded study found that, “financial gains for [340B] hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients.” This is just one of several studies debunking claims that Section 340B is working as intended.
There is also research showing that just 38% of 340B DSH hospitals, 29% of DSH child sites, and 26% of contract pharmacies are located in medically underserved areas. Further evidence that Section 340B is not working as intended is that between 2011 and 2019, the percentage of 340B contract pharmacies located in the lowest-income neighborhoods declined by 5.6%. In contrast, the share of 340B pharmacies located in the highest income neighborhoods increased by 5%.
This may help explain why, 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! Section 340B is a well-intentioned program that, tragically, results in the opposite of the effect its creators intended.
Instead of helping low-income Americans, Section 304B is boosting hospital profits and incentivizing consolidation in the health care system. This is contributing to the continued increase in the costs of health care. The recent hearing shows that Congress realizes the problems with the program. Now, Congress must reform Section 340B by—amongst other changes—requiring that the money qualified entities save from participating in the program be used to provide care to low-income and uninsured Americans.
