(p. A1) A decades-old federal program that offered big drug discounts to a small number of hospitals to help low-income patients now benefits some of the most successful nonprofit health systems in the U.S.
Under the program, hospitals buy drugs at reduced prices and sell them to patients and their insurers for much more, often at facilities in affluent communities.
One participant is the Cleveland Clinic’s flagship hospital, which reported $1.35 billion in net income last year. The hospital doesn’t admit enough Medicaid and low-income Medicare patients to qualify for low-cost drugs under the program’s original requirements. But a quirk in federal law allowed the hospital to qualify as a “rural referral center,” despite its location near the center of Cleveland.
Despite the benefits, the program hasn’t resulted in new drug discounts for low-income Cleveland Clinic patients, nor has it caused the hospital to increase the financial assistance it offers to those who can’t afford care. (p. A10) The charity care the main hospital writes off represents less than 2% of its patient revenue, according to a Wall Street Journal analysis of hospital Medicare filings.
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The hospital’s $1.35 billion net income figure for 2021, she said, includes investment returns.
Cleveland Clinic’s adoption of the drug-discount program at its main hospital in April 2020 produced about $136 million in savings on drugs that year, the spokeswoman said.
The federal drug-discount program, known as 340B after the statutory provision that created it, requires pharmaceutical companies to sell drugs to participating hospitals at reduced prices. The program has grown rapidly in recent years. It now includes about 2,600 nonprofit and government hospitals, which spent at least $38 billion on discounted drugs last year, according to the Health Resources and Services Administration, the federal agency known as HRSA that oversees the program.
What the hospitals do with their valuable discounts isn’t always clear.
The program doesn’t require participating hospitals to pass on drug discounts to patients, insurers or Medicare. There is no rule limiting how much they can charge for the drugs. They don’t have to report how much they make from such sales, nor do they have to spend any profits to benefit low-income patients.
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The 2010 Affordable Care Act brought a big expansion of 340B, adding new categories including critical access hospitals, which are small, typically rural facilities, and rural referral centers, which are supposed to be rural hospitals that treat a large volume of patients, including many complicated cases.
Under the federal definition of rural referral centers, hospitals that aren’t in rural locations could still qualify if they meet other criteria—minimally, having at least 275 beds. There is no requirement to serve rural patients.
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“We were trying to help rural hospitals,” said Robert Kocher, an Obama White House health adviser involved in crafting the ACA who is now at venture-capital firm Venrock. “It would not be our intention to have a medical center in Cleveland, Boston or Chicago be included.”
(Note: the online version of the story has the date December 20, 2022, and has the title “Many Hospitals Get Big Drug Discounts. That Doesn’t Mean Markdowns for Patients.”)
