Photo credit: Tima Miroshnichenko
ARE Hospitals Pocketing Profits Meant for the Poor?
New York Democrats Push Bill That Shields Abuses in Federal Drug Discount Program
In the world of healthcare, the 340B drug pricing program was supposed to be a beacon of hope. Created in the 1990s, the federal program was designed to provide discounted prescription drugs to hospitals and clinics serving low-income patients. The idea was simple: allow these facilities to buy medications at steep discounts (30 – 50% off below market rate), so they could stretch their limited resources further and help more people in need.
But here is the problem . . .the program doesn’t require hospitals to pass those savings along to patients. In fact, there are no clear rules about how that money is used at all. And many large hospital systems have taken advantage of that lack of oversight with buying low, selling high, and pocketing the difference. The profit then can be redirected to executive compensation, marketing, or expansion projects, rather than improving patient care. Here are two real life examples of this happening in NYS, one from an downstate hospital and another from upstate. The NY Times and other news outlets reported that the New York Presbyterian Hospital purchased discounted drugs while serving relatively few uninsured patients compared to the revenue it earns from the program. In 2020, it made over $8 billion in revenue and spent less than 1% of that on charity care. A study by the NYS Health Foundation found that St. Joseph’s Health in Syracuse did not always offer discounted drugs at their outpatient pharmacies even for eligible low-income patients and that these patients often had no idea 340B discounts existed, and hospitals weren’t required to tell them.
Today, roughly two-thirds of New York hospitals participate in the 340B program. But rather than serving as a lifeline for struggling institutions, the program has morphed into a profit center for large, well-resourced health systems. Some hospitals are generating millions of dollars annually through these drug discounts. And yet, instead of closing this loophole or demanding greater accountability, some New York lawmakers are looking to shield it by introducing a bill that can make things worse.
S.1913/A.6222 backed by state Democrats, would block drug manufacturers from auditing hospitals participating in the 340B program. In effect, it handcuffs the very entities trying to ensure the program isn’t being abused. If passed, this will preserve a system of unchecked profits at the expense of transparency and fairness. And to be clear, there are no federal mandates requiring hospitals to disclose how they spend their 340B savings. No transparency around pricing practices. And now, potentially, no audits to confirm compliance.
In theory, the Health Resources and Services Administration (HRSA), which oversees 340B, has some enforcement power. But in practice, the agency is underfunded and overwhelmed. Without the ability for third parties, like manufacturers, to conduct audits, the system is ripe for exploitation.
It’s not surprising that large health systems are lobbying hard to keep the status quo. But it is surprising that some Democratic lawmakers, traditionally seen as champions of healthcare equity, are carrying water for these institutions. At a time when working-class New Yorkers are struggling to afford basic medications, and when healthcare costs continue to skyrocket, pushing a bill that insulates hospitals from scrutiny sends the wrong message. Instead of protecting powerful interests, our lawmakers should be demanding greater oversight of the 340B program. They should be asking: where is the money going? Are patients truly benefiting? And if not, how do we fix it?
The bottom line is the 340B program was never meant to be a cash cow for hospital systems.