The 340B Drug Pricing Program is a program instituted 25 years ago to allow hospitals treating low-income patients to purchase drugs at substantial discounts, with the intent that hospitals would use the resulting surplus revenue to expand care for the underserved. The program, however, provides no financial incentive for hospitals to do so. Rather it only increases the profitability of providing drugs to insured patients, particularly those with insurance that reimburses providers at higher rates. Initially a small program limited to a few hospitals with particularly high shares of low-income patients, the 340B program has grown dramatically. Close to half of general acute care hospitals now participate. A study published in the New England Journal of Medicine suggests that the program has been a financial boon to eligible hospitals but is not clearly meeting its goals in terms of better serving the underserved.

HCP Warren Alpert Foundation Professor of Health Care Policy J. Michael McWilliams, PhD, MD, senior author of the study, says that the 340B Program is a classic case of incentives dominating intentions. He and Sunita Desai, PhD, former Seidman Post-doctoral Fellow at HCP, found that the 340B program has led hospitals to administer more injectable and intravenous outpatient drugs, which are often expensive, and to acquire practices or employ more physicians in specialties that frequently use these drugs. The additional drugs and specialty care provided by the hospitals went disproportionately to more affluent patients, as opposed to the low-income patients that 340B intended to help.

The study also found no evidence of participating hospitals using profits from the program to invest in community health centers or enhance care in ways that would lower mortality for low-income populations in the hospitals’ local communities.

Although the study pertains only to hospitals that became eligible when the 340 program expanded, the findings have important implications for policy as the controversial program is hotly debated in Congress. For example, the results would support scaling back eligibility for the program, greater oversight of hospital use of surplus generated from the drug discounts, and—more generally—reforms that would allocate more resources to the care of underserved populations directly, without distorting the incentives for hospitals to provide drugs.

For more on the study, see: STAT News, The Incidental Economist