Dan Gorenstein: A contentious program that brings in billions for U.S. hospitals had its moment in the sun this summer.

Chief Justice John Roberts: We’ll hear argument next in Case 20-1114, American Hospital Association versus Becerra.

DG: The Supreme Court unanimously ruled that Medicare illegally cut payments to hospitals in the 340B program and now owes them about $3 billion.

But the court was silent on the controversy that has dogged 340B for years: who should benefit?

That question has pitted hospitals against hospitals, pharmaceutical giants against clinics that serve low-income patients.

Stuck in the middle of these heavyweights: some of the country’s poorest and most vulnerable people.

Today, diving deep into 340B — how it works, how it has evolved and what it may take to fix this $38B dollar program.

From the studio at the Leonard Davis Institute at the University of Pennsylvania, I’m Dan Gorenstein. This is Tradeoffs.

*****

DG: When I look at 340B, I see shades of Mary Shelly’s Frankenstein.

Frankenstein: Give my creation life!!

DG: Good intentions gone wrong. 

Frankenstein: [roaring]

DG: The good intention was simple enough: Congress created 340B in 1992 to help hospitals and clinics care for low-income patients.

Think big public hospitals, AIDS clinics and community health centers.

340B requires drug companies to give these providers big discounts on prescription drugs.

And as the program has grown in recent years, it’s gotten contentious.

Sen. Patty Murray: 340B is critical for safety net providers that care for patients and families with the greatest needs and fewest resources.

Sen. Bill Cassidy: The 340B program, which ostensibly is getting this discount to provide more services, statistically is associated with providing fewer services.

DG: Now you’ve got all the various camps — hospitals, drug makers and community health centers — all armed with their own data and talking points. 

But the evidence produced by academics who have no financial interests raises foundational questions about whether this little understood program is delivering on its original promise. 

Sayeh Nikpay: You can say that again.

DG: To help us understand 340B is University of Minnesota economist and Tradeoffs Research Editor Sayeh Nikpay. 

Sayeh, nice to see you.

SN: Thank you, nice to see you too.

DG: So you’ve written and researched this program as much as just about anybody in the country. 

SN: Yep, I’ve been studying this program for eight years, which is basically since I started my career. I actually dream about 340B. 

DG: Wait, is that true?

SN: It is true.  

Like I talk about it on date night. It’s … yeah.

DG: And would you consider yourself someone who thinks 340B has lost its way?

SN: Yes, absolutely.

DG: So help me trace how that happened.

Let’s start by explaining what problem the 340B program set out to solve.

SN: Well, here’s the scene back in 1992.

Federally-funded clinics were struggling to make ends meet. Public hospitals like Cook County Medical Center in Chicago were closing at twice the rate of hospitals in general.

And Congress was concerned.

In some sense, Cook County was exactly the kind of hospital 340B was designed to help.

DG: Tell me about Cook County. Why?

SN: So, they take everyone, no insurance, undocumented, no problem. And they end up providing lots of free care. 

More than 75% of its patients are on Medicaid, pay cash, or rely on charity care. 

And back in the early ’90s, Congress wanted to make sure places like this could keep the lights on and continue to take care of this vulnerable patient population. 

DG: OK, so Congress wants to protect the services the Cook County’s of the world are providing, and their solution was to require drugmakers to give them big discounts. 

Sayeh, help us follow the money.

SN: Sure. So take a cancer drug.

The drugmaker normally charges $100,000. But since Cook County is 340B, they’d get it at a discount.

The actual discounts are confidential, and the details are pretty technical, but roughly based on some government reports, we know they’re often between 20 and 50 percent of that $100,000.

DG: Fine. To make the math easy in this example, let’s say Cook County got a 50% discount. So they’re paying $50,000 to the drug company. That’s simple enough.

Now I grew up in Chicago. What if I am uninsured, I go to Cook County and need this drug.

Sayeh, how much am I gonna pay?

SN: You’re uninsured, so you would probably pay very little, maybe nothing at all, which again is why I think of this hospital as the 340B poster child. By helping out Cook County, policymakers were giving you, the uninsured patient, help too.

DG: Because it’s using these discounts to give free care. Makes sense.

And what if I have insurance? What happens then?

SN: If you’re insured, you’ll probably have a copay like any other prescription. And your insurance will cover the rest.

But this is where it gets interesting, Dan.

Even though Cook County only paid $50,000 for the drug, they can charge your insurer the whole $100,000 and pocket $50,000.

The hospital can then use that money to help cover all the free doses of the drug they’re giving to uninsured folks, or they can use it to just keep the lights on.

DG: Because as you said, a lot of these places struggle financially because they offer so much free care.

SN: Exactly.

DG: So what’s interesting here is when Congress created the program in the ’90s, lawmakers decided not to give patients a discount directly. This is really about the hospitals, the clinics, places like Cook County. Congress wanting them to get these big discounts so they can keep their doors open.

Am I getting this right, Sayeh?

SN: Yes, but it’s a little bit more complicated than that.

There are some advocates and policymakers who have been arguing that the whole point of this program should be to help directly those low-income patients who can’t afford prescription drugs.

Others say this is a distinction without a difference. If Cook County’s benefit from the program, those benefits should inevitably trickle down to the needy patients they serve.

And Dan, this ambiguity over who 340B should target — the hospitals and the clinics or the actual people who are struggling to afford their drugs — is at the core of the concerns about how this program’s good intentions have gone wrong.

Frankenstein: Catch him alive if you can, but get him!

DG: When we come back, how 340B has morphed beyond its creators’ design and what’s at stake if the program stays on its current path. 

MIDROLL

DG: Welcome back.

We’re talking with University of Minnesota economist and Tradeoffs Research Editor Sayeh Nikpay, talking about the controversial $38 billion drug discount program known as 340B.

Before the break, Sayeh, you were saying that a lot of 340B’s problems stem from a question over “who” should benefit from the program.

SN: That’s right, Dan. Based on research, this is where we start to see 340B’s good intentions start to morph.

When the program started in 1992, fewer than 3% of hospitals were participating, and they tended to be like Cook County with lots of low-income and uninsured patients.

By 2009 it’s up to 13%, and the hospitals are looking a little different — way fewer uninsured patients — but they still qualified because Congress left the eligibility rules for the program pretty broad.

And then they made them even broader when they passed Obamacare in 2010.

Now rural hospitals, cancer hospitals, critical access hospitals, couple other types of hospitals could join too, regardless of how many uninsured patients they served.

DG: So how big has this 340B Frankenstein’s monster become?

SN: You ready for this?

DG: I am.

SN: By 2020, about 40% of hospitals were getting discounts, and as you’ve said 340B now accounts for $38 billion, or 7% of total U.S. drug spending.

DG: Wow, that is huge from where this thing started.

On the one hand, this seems like it could be a good thing, right? More hospitals are enrolling in the program, getting discounts, passing them along to patients. 

At the same time, it sounds like what you’re saying is a bunch of these newer hospitals don’t look anything like Cook County.

SN: Exactly. A 2018 federal report found that many 340B hospitals don’t actually serve lots of low-income patients.

Let’s stay in Chicago, Dan, where there are now 20 hospitals in the 340B program, and some of them have 75% of their patients who are commercially insured or on Medicare.

DG: Which is the exact opposite of Cook County which had 75% on Medicaid, cash or charity care.

SN: Yup, that’s right. And at those new hospitals, only about 5% of patients get outright charity, compared to Cook County where it’s double that. 

And that matters because the more insured patients the hospital has, the more money that hospital can bring in through 340B.

DG: In other words, they have a lot more patients with insurance who they can charge the full $100,000 for that cancer drug and make a the $50,000 profit, and a lot fewer patients who need that drug for free.

And, Sayeh, when you look at the patients these newer hospitals serve, 340B starts to look more like a cash cow then a program to help hospitals that treat lots of low-income patients.

SN: That’s right, Dan.

Now to be clear, because of how the law is written, all of these hospitals with lots of insured patients can apply to the government and enroll in 340B. It’s all above board. 

And a lot of them say they use those savings to provide cheaper medications to low-income people, opening clinics in high-need areas or offering free care to the uninsured.

DG: At the same time, and I know you know this, Sayeh, you have drugmakers and some lawmakers accusing these newer 340B hospitals of “gaming” the system, allowing them to pocket discounts without doing much to help low-income people.

Who’s right here?

SN: It’s hard to know, Dan, because hospitals can use the money however they want, and there are no reporting requirements to track their 340B spending.

Some of them might be doing wonderful, lovely things. But as a researcher and someone who likes systematic evidence, objective evidence, big datasets, it’s really hard for me to rely on self-reported testimonials. And to truly know whether these hospitals with a lot of insured patients are living up to their word and the original intent of 340B, we need data on how they’re spending this money.

Without it, we’re left with limited evidence to answer how much low-income people are actually benefiting.

DG: But we do have some studies, right?

You’ve done some of them.

What do they tell us?

SN:  So here’s the clearest picture we can piece together, Dan, with far-from-perfect data.

Back-of-the-envelope, it looks like $15 billion is going to 340B providers. Most of that is going to hospitals.

What the best evidence shows us is that hospitals are continuing to find ways to make money from this program, through things like opening practices in richer neighborhoods.

But, their spending on low-income and uninsured patients stays flat.

DG: So here’s the Frankenstein, right? Where this program has maybe gotten out of hand. 

Let me see if I’ve got this.

340B was designed for Group A: hospitals and clinics who served primarily low-income and uninsured patients. 

But lately, we’ve been seeing a lot more from Group B: these hospitals that care for more well-insured people.

And that’s got drugmakers, policymakers and academics like you saying this program has gone off the rails. 

SN: You’ve got it, Dan.

We know that collectively, the hospitals in 340B are getting billions of dollars a year through this program, a program that is made to make sure low-income people can get care and afford their prescriptions. 

What’s a mystery right now is how well those goals are being met.

DG: And is there any movement from lawmakers in Washington to actually get to the bottom of that mystery?

SN: There were a handful of hearings in 2018, but so far nothing has come from them.

One reason I think 340B is so hard to change is because so few people know how it works. 

But maybe even more than that, there’s a lot of money at stake for these hospitals and clinics.  

Hospitals are pillars of their communities — and huge employers. And as we’ve seen over and over again, it’s hard to convince lawmakers to take money away from them.

DG: You know, Sayeh, I can understand why you’ve spent so much of your career working on 340B. Health economists hate inefficiencies and wasteful spending. I certainly know that.

And drugmakers clearly don’t like giving all these discounts.

But why should everybody else care about the fate of 340B, this Frankenstein?

SN: Because that good intention 340B started with — helping hospitals and clinics care for vulnerable people —that’s critical, but that critical mission is jeopardy.

Drugmakers are getting angry and pushing back. Nearly 20 companies are refusing to offer 340B discounts to some pharmacies.

And while these industry giants battle it out, you’ve got safety-net hospitals and clinics and their vulnerable patients hanging in the balance.

If 340B goes away, some of these providers could too, and their patients will have even fewer options than they do today.

DG: Sayeh Nikpay, thanks so much for being here.

SN: Always a pleasure, Dan.

DG: I’m Dan Gorenstein. This is Tradeoffs.

Tradeoffs’ coverage of health care costs is supported, in part, by Arnold Ventures and West Health.