It's Time to Shine a Light on the 340B Healthcare Scam

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Earlier this month, a passerby filmed a disturbing situation unfolding outside a Baltimore hospital on his phone.

“A woman who appeared to be wearing nothing but socks and a hospital gown was discharged from a Baltimore hospital on a cold winter night and left alone at a bus stop,” the New York Times reported, describing the footage.

“So you all are just going to leave this lady out here, with no clothes on?” Imamu Baraka, the man who filmed the incident, is heard asking the uniformed hospital employees in disbelief as they march indifferently back to the hospital, empty wheelchair in tow.

The callousness of dumping a patient who can barely stand onto the street is shocking. But there’s also a glaring contrast to the conduct exposed that night and the many government policies the hospital, the University of Maryland Medical Center, benefits from — all intended to ensure that patients like that woman receive treatment.

Legally, the UMMC’s parent corporation exists as a non-profit, but its cashflow is utterly unlike the charities that designation was created for. In 2015, the UMMC had nearly $2 billion in revenue. But only one-half of one percent of that came from grants or contributions.

It operates instead as a profitable business, with a slew of high paid executives, many earning more than $1 million a year, atop the company. (Robert Chrencik, the CEO, takes home $2.5 million a year).

UMMC also qualifies for a special “340B” designation for treating a “disproportionate share” of low-income patients. Under federal law — including provisions greatly expanded in Obamacare — 340B hospitals are eligible to buy prescription drugs at 25-50% discounts from suppliers.

Congress enacted this provision in the early 1990s with the admirable goal of ensuring low-income patients would be able to pay for the medicines they need.

Unfortunately, they didn’t anticipate the current generation of Gordon Gecko-like corporate titans running America’s “non-profit” hospitals, who turned the discounts into an arbitrage opportunity.

As documented exhaustively by a just-released investigation by the House Energy & Commerce Committee, the law doesn’t require hospitals to pass the discounts on to patients in the form of lower prices, so they don’t, pocketing it instead.

It’s a lucrative practice, netting a large hospital in the vicinity of $100 million in profit annually.

Over the last decade, the 340B program has exploded in size as hospitals went to elaborate lengths to increase their eligibility. This has created perverse incentives, like instances where prescribing a more expensive medicine is profitable for a hospital because of its 340B discount, while a cheaper alternative is not, driving up health care costs.

A bipartisan pair of lawmakers, Reps. Larry Bucshon (R-IN) and Scott Peters (D-CA), recently introduced legislation to add transparency to this process.

The bill, H.R. 4710, would put a temporary freeze on eligibility under the program, while requiring existing participants to begin reporting how much money they save from the government-mandated discounts, as well as how they spend it.

Under current law, there are virtually no reporting requirements, so even intensive efforts to understand how the law is working have faced severe difficulties in quantifying its effects.

Hospitals, one of the most entrenched special interests in Washington, have unsurprisingly declared war on the legislation, arguing it would pose an undue burden to report data that, in most cases, they are already collecting.

Personally, I think hospitals could use a bit of transparency. There’s something off when our government is giving all kinds of breaks to an industry to ensure the poor are cared for, when in many cases — including the woman left in the cold by UMMC — the people who seem to be benefiting the most are the hospitals themselves.