The federal 340B drug pricing program isn’t a bad idea in theory. The federal government requires manufacturers to sell discounted drugs to nonprofit hospitals serving a high percentage of low-income residents. The idea is that this will lower drug costs for the poor. The government essentially offloads the costs of providing drugs from taxpayers to drug manufacturers.

The problem is that it doesn’t work. As with many federal programs, companies take advantage of it for their own gain. Essentially, some large nonprofit hospitals and health companies rake in profits in a scheme set up by the federal government.

Ted Okon of the Community Oncology Alliance summarizes what’s wrong with this arrangement:

The problem is that the 340B program has become a slush fund for its other participants, the large, supposedly nonprofit hospitals and health systems. They buy drugs at steep 340B discounts, then charge insurers, the uninsured, and cash-paying patients a huge markup. The profits pad the hospitals’ bottom lines and provide ample capital to take over and consolidate local markets, particularly in cancer care. And the result is shockingly little charity care.

Put simply, in many cases , hospitals buy drugs at basement prices, charge middle-class privately insured patients skyscraper prices, and then pocket the difference.

In Crain’s Detroit Business, Brian Peters, CEO of the Michigan Health & Hospital Association, defends the program. He mentions articles “critical of the savings that 340B generates for health systems across the country, including in Michigan,” and then adds, “without these savings, difficult decisions will be made by hospitals that will impact service lines and the availability of health care in your community.”

He goes on to say that the extra profits hospitals make from discounted drugs allow them to absorb some of the costs they face for staff, supplies and equipment.

That may be, but it doesn’t justify an inefficient program. The idea of providing drugs at a discounted price to low-income patients makes sense. But the 340B program only does this indirectly, if at all. Yes, the program is limited to nonprofit hospitals serving a higher percentage of patients on Medicaid. But there’s no requirement that hospitals use the profits they make from it to help low-income patients, which works against the spirit behind the program.

In fact, an analysis of four hospitals in Michigan found that they spend less money on charity care than hospitals that were not eligible for the program.

The idea of making sure low-income residents get the drugs they need is a good one. But the 340B program — which has skyrocketed in cost — doesn’t do that.

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