When a private oncology practice in Memphis, Tenn., formed a partnership with a nearby hospital in late 2011, the organizations proclaimed that the deal would “transform cancer care” in the region.
What they did not emphasize was that it would also create a windfall for them worth millions of dollars a year, courtesy of an obscure federally mandated drug discount program.
The program, known as 340B, requires most drug companies to provide hefty discounts — typically 20 to 50 percent — to hospitals and clinics that treat low-income and uninsured patients. But despite the seemingly admirable goal, the program is now under siege, the focus of a fierce battle between the pharmaceutical industry, which wants to rein in the discounts, and the hospitals, which say they might have to cut services without them.
One issue is that the program allows hospitals to use the discounted drugs to treat not only poor patients but also those covered by Medicare or private insurance. In those cases, the hospital pockets the difference between the reduced price it pays for the drug and the amount it is reimbursed.
In a new report, pharmaceutical industry trade groups say some hospitals have gone overboard in using the program to generate revenue, straying from the original intent of helping needy patients. The report called for the discounts to be more narrowly focused. Hospitals say 340B was never meant to merely provide cheap medicines to poor people; rather, it was meant to help the hospitals that treat such patients.
It is too early to say what, if any, changes will be made. Hospitals say restricting the discounts to drugs actually consumed by poor patients would eviscerate the program’s benefits.