Over 30 years old, the federal 340B drug pricing program requires drug manufacturers to sell their products at a huge discount to hospitals with a certain percentage of low-income patients. The idea was that this would allow hospitals to earn money reselling those discounted drugs in order to improve service for patients.
This isn’t a good idea, even in theory. The government should not be in the business of trying to shift profits from some private entities toward others. And in practice, this program doesn’t work as lawmakers intended. The hospitals taking part in the program tend to earn more profits, but donate less charity care.
And that may be the best-case scenario. One hospital system was reported to have used the program as a money laundering scheme. One of its hospitals in a low-income area bought tons of discount drugs, resold them for huge profits and slashed programs for the poor while it sent the money out to its other hospitals serving a wealthier clientele.
That story is not an anomaly. The New York Times reports that the 340B program — which also was originally intended to be for a small number of hospitals serving needy patients — is now used by more than half of non-profit hospitals. Some companies have figured out how to take advantage of this federal program.
In New York, Apexus operates as a middleman, negotiating between drug manufacturers and distributors. It collects a fee on almost every drug sold which, as the Times notes, gives it a strong incentive to get hospitals to purchase as many drugs as possible. The company has doubled its revenue from 2018 to 2022, mostly by broadly interpreting the rules of the program to expand it to more and more companies and patients.
The 340B program is poorly designed. It encourages misuse, which is why the amount of medication sold through the law quadrupled from $9 billion in 2014 to $38 billion in 2020.
Michigan lawmakers may make things even worse. Hospitals consistently work to buy more drugs through this system, and manufacturers have attempted to limit the amount being sold. Bills introduced last year would further limit caps and negotiations in this program, encouraging even more misuse. The bills failed at the end of the year but are expected to be reintroduced. Lawmakers should reject this slush fund scheme.
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