In a recent column for RealClearMarkets, Market Institute Senior Fellow Norm Singleton examines how a well-intentioned federal program has morphed into a major source of wasteful healthcare spending and industry consolidation.
Total healthcare spending is projected to reach nearly $6 trillion this year, with more than $2 trillion coming from federal programs like Medicare and Medicaid. As Singleton explains, that means healthcare now accounts for roughly 30 percent of all federal spending—making it one of the largest drivers of the nation’s growing debt.
One place Congress should look for savings is Section 340B of the Public Health Service Act. Created in 1992, the program requires drug companies to sell pharmaceuticals at steep discounts to certain hospitals and clinics that serve low-income patients. But the program’s structure has created incentives that benefit large hospital systems rather than the patients it was meant to help.
As Singleton notes, hospitals participating in 340B can purchase drugs at discounted rates but still receive reimbursement as if they paid full price—without any statutory requirement that the savings be used to help uninsured or low-income patients. The result is a system that too often boosts hospital profits instead of expanding access to care.
“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.”
The program has also contributed to consolidation in the healthcare industry. Because hospitals can extend 340B pricing to affiliated clinics and facilities, the program encourages large systems to acquire physician practices and outpatient centers.
Singleton points to new research showing how this dynamic is shifting care away from independent physicians and into higher-cost hospital settings. A study by the Berkeley Research Group found that the share of certain cancer treatments delivered in 340B hospitals has doubled over the past decade, while treatment in physician offices has declined.
That shift has real consequences for patients. According to research from Milliman, patients treated at 340B hospitals pay roughly 30 percent more for prescription drugs than those treated in non-340B facilities.
Further evidence comes from the Congressional Budget Office, which found that most of the growth in 340B spending is not due to higher drug prices, but rather to hospitals acquiring more clinics and pharmacies—expanding their reach within the program.
“The rest of the increase is due to hospitals acquiring off-site clinics and pharmacies.”
Singleton argues that Congress should fix the program by restoring its original purpose: helping low-income and uninsured patients.
One straightforward reform would be to require participating hospitals to use their 340B savings to provide care to those patients. Since participation in the program is voluntary, hospitals that want the benefits should also meet the program’s intended obligations.
With Congress likely to revisit healthcare legislation this year—including potential extensions of Affordable Care Act subsidies—Singleton suggests that adding 340B reform would be a practical way to reduce waste, limit consolidation, and improve access to care.
“Reforming Section 340B would also remove incentives for big hospitals to acquire small facilities and independent medical practices.”
Fixing 340B will not solve every problem in America’s healthcare system. But as Singleton’s analysis makes clear, restoring the program to its original mission would be a meaningful step toward lower costs, more competition, and better care for patients.
Read more at RealClearMarkets by clicking here.
0 Comments