Hospitals across Michigan are exploiting a little-known federal program to squeeze millions of dollars from the state’s poorest patients.Congress created the 340B Drug Pricing Program in 1992. It allows certain hospitals to purchase medicines from drug companies at substantial, mandatory discounts. Congress aimed for hospitals to reinvest these savings in patient care.But when I recently examined public data on Michigan hospitals’ revenue and investments, I discovered that Michigan’s disproportionate share hospitals are instead using the 340B program to extract higher profits from patients ― and investing tens of millions of those earnings on Wall Street, rather than back into their local communities.Unfortunately, rather than working to fix the program and ensure it actually helps poor Michiganians, some state lawmakers are considering expanding it even further.
Congress established the program with good intentions. But Washington didn’t include sufficient guardrails to limit enrollment to genuine safety-net hospitals. Fewer than 100 hospitals nationwide were expected to participate in 340B at the program’s inception, but today, more than 2,600 do.Washington also didn’t explicitly require hospitals to pass the discounts they receive on to patients. So rather than buying discounted drugs and then providing them at reduced cost to low-income and uninsured patients, many 340B hospitals simply pocket the discounts and mark up the prices they charge to patients.Patients across the state are paying the price for this legislative oversight.Roughly 50% of Michigan’s hospitals now enroll in the program. And as my recent investigation ― which compared Michigan’s safety-net 340B hospitals to non-340B hospitals using their most recent annual financial reports, controlling for size, location and system differences ― found, the program is clearly failing to achieve its goals.Even accounting for the various differences, the average 340B hospital generated 49% more patient revenue than the average non-340B hospital. Yet 340B hospitals provided an average of 34% less charity care. They also didn’t pay their workers any more than non-340B hospitals did.So where did the money go? Evidently, Wall Street. The average Michigan 340B hospital invested more than twice as much revenue into stocks and bonds as the average non-340B hospital.Put simply, patients are being charged higher prices to pad hospitals’ portfolios. In one egregious example, according to the Michigan Health Purchasers Coalition, Henry Ford Jackson Hospital forced arthritis patients to pay nearly $10,000 for their medication, more than four times the medicine’s usual sales price.Some Michigan legislators want to alter how 340B operates in Michigan. Unfortunately, their “reforms” would exacerbate, rather than prevent, such price gouging.Earlier this year, the Michigan Senate passed a bill that would give 340B hospitals greater leeway to contract with external pharmacies to buy and dispense even more discounted drugs and then bill patients and insurers at substantial markups.Legislators in the state House are considering a similar bill, but patient groups are mobilizing against the measure, rightly fearing that such a bill would result in higher markups, less charity care and more money that’s meant to help working-class Michiganians sent to Wall Street instead.Michigan families deserve a 340B program that works for them. To provide that, policymakers will need to close loopholes in the program – not expand them even wider.Dr. Lisa Grabert is a visiting research professor at Marquette University. She previously served as a senior aide to the U.S. House Committee on Ways and Means and as senior associate director of policy at the American Hospital Association.