A program developed in the 1990s that allowed healthcare facilities to purchase discounted outpatient drugs to help low-income patients has turned into a system of abuse and abuse without government oversight, according to industry insiders.

A panel at a breakfast hosted by Colorado Politics in Downtown Denver on Tuesday discussed the state and national impacts of the drug pricing program known as 340B on the healthcare industry. More specifically, the three-member panel described how much this is costing the healthcare industry.

The federal 340B Drug Pricing Program allows eligible healthcare facilities to purchase outpatient drugs from manufacturers at a discount. The program was established in 1992 as part of the Public Health Services Act.

After the Affordable Care Act was passed during the Obama Administration, more people became insured and the 340B program evolved into something it was never intended to be, starting around 2010, said William Smith, a senior fellow in life sciences at the Pioneer Institute. 2011.

Pharmaceutical companies and major hospitals are learning how to profit from the program, Smith said. For example, a cancer drug that costs around $200,000 costs only $25,000 for hospitals with 340B status. But he said the hospital still billed insurance companies $200,000 and “pocketed $175,000.”

“What’s driving this program is actually hospitals’ ability to arbitrage rebates,” Smith said. “And what happened is that hospitals went into wealthy neighborhoods and bought up doctors’ practices, especially doctors’ practices like rheumatologists or oncologists who prescribe high-cost drugs, and they bought them out so they could charge more for profit-oriented discounts.”

Pharmacy benefit managers (PBMs) and pharmacies “ran into this program because it has so much cash in it,” Smith said, adding that reimbursements are higher than a regular commercial health plan.

When the program, overseen by the Health Resources and Services Administration, started in the 1990s, Smith estimated only 500 organizations were eligible. Today this number has reached 10,000.

“And let me say something about hospitals because that could mean I’m criticizing hospitals, but that’s not the case,” Smith said. “I have a pretty balanced view of hospitals.”

Smith said hospitals know 340B is doing the job it’s supposed to do by treating uninsured and low-income patients. But he also knows that wealthy hospitals are taking advantage of the program while reducing their “charity” services.

Not all hospitals took advantage of the program, panelists said, and that was due to “a few bad actors.”

The result, panelists emphasized, is that insurance premiums increase and costs fall on employers.

Jonathan Campbell, chief scientific officer of the National Pharmacy Council, said that in addition to employers, there are real concerns about how the 340B program now affects patients.

Campbell, who attended the health breakfast virtually from Washington, D.C., said patients may not be positively affected by 340B when there is a “buy low, sell high” approach to patient care.

“Buy low, sell high means payers are paying top dollar,” Campbell said. “It’s generally an irrelevant amount for drugs. “And these concerns stem from employers not being able to get discounts.”

Patients and employers will foot the bill for $5 billion in overbilling, Campbell said.

PhRMA’s vice president of policy and research, Courtney Christian, who personally attended the panel, stated that the solution cannot be to eliminate the 340B program, because when implemented correctly, it adds value to hospitals and its main purpose is to help patients. We support needy and charitable programs.

Christian described a bleak picture of the program’s continued growth.

PhRMA estimates that 57% of all U.S. hospitals participate in 340B, and discounted program purchases will reach an estimated $54 billion in 2022, up 23% from 2021.

PhRMA data shows that the number of participating contract pharmacies has increased by 8,000% since 2010.

In Colorado, 64 hospitals participate in the 340B program. PhRMA estimates there are 1,118 contracts between Colorado 340B hospitals and pharmacies nationwide.

Only 25 percent of contract pharmacies are in medically underserved areas, Christian said.

According to PhRMA data, hospitals in Colorado make 2.8 times more on the 340B they spend on charities.

Meanwhile, Christian said there are still 40 million uninsured citizens who need programs like 340B.

A federal fix

Asked whether states could adopt a policy to address the problem, Reid Porter, PhRMA’s senior director of public affairs, said 340B is a federal program “in desperate need of a federal fix.”

Christian said state lawmakers can help by pressuring Congress to update policies and demand greater hospital accountability.

Smith said the biggest issue is transparency. As current policy stands, hospitals are not required to report charitable projects to which funds are directed.

Christian and Smith agreed that simply requiring hospitals to report how much 340B funds they received and where they spent them could solve many problems.

Smith warned that the hospital lobby is powerful and could deter Congress from taking action.

Christian said some members of Congress are reviewing the data and considering updating 340B policies, which have remained unchanged since its approval 30 years ago. He said there is hope that some progress will be made in the 2025 session.