One reason libertarians don’t trust the government is because so many well-intentioned programs end up either making things worse for the supposed beneficiaries, enriching powerful interests — or both. Norm Singleton highlights one such example: the federal Section 340B prescription drug program, which has quietly ballooned into a multi-billion-dollar market distortion.
“Created in 1992, Section 340B of the Public Health Service Act requires drug manufacturers to provide discounts on outpatient drugs purchased by ‘qualified entities’ such as federally qualified health centers and disproportionate share hospitals (DSH).”
The program was supposed to help hospitals serving low-income Americans. Instead, Singleton explains, it now incentivizes hospitals to buy up clinics and pharmacies, then bill insurers and taxpayers at full price — pocketing the difference.
“Hospitals and pharmacies have figured out how to game the system, so most of the money they receive by participating in Section 340B does not help low-income individuals.”
The numbers tell the story:
- More than 53,000 sites now participate in 340B.
- Covered entities purchase over $66 billion in outpatient drugs.
- Yet 69% of hospitals in the program spend less on charity care than average.
And because there’s no legal requirement for hospitals to spend savings on charity care, the intended beneficiaries — uninsured Americans — see little help.
Singleton traces the roots of the problem back to another “good idea gone wrong”: the Medicaid Drug Rebate Program, which originally pushed drugmakers to cut off voluntary discounts to safety-net providers. Congress created Section 340B to fix that mistake — and, in doing so, created a new one.
“Hospitals that participate in Section 340B should be required to spend the money they save by participating in the program on providing free or reduced-price care to those who lack insurance. This would not only fulfill the program’s intent—it would remove the current program’s incentives for hospitals and pharmacies to engage in mergers and acquisitions.”
As Singleton concludes, the real solution isn’t another layer of red tape — it’s restoring a free-market healthcare system that empowers patients through expanded Health Savings Accounts and individual tax credits.
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