Through gross incompetence and active complicity, the federal government is allowing big hospitals to abuse a safety-net program, thereby defrauding taxpayers and harming patients’ access to medicines.

Each year, massive hospital systems exploit the loopholes of a drug pricing program called 340B, which is meant to provide reduced-price medicines to eligible safety-net clinics and hospitals serving large populations of low-income and otherwise vulnerable Americans.

To make matters worse, some 340B-eligible hospitals seem to be contributing to prohibited “double dipping” by collecting hefty discounts for drugs subject to the Medicaid rebates manufacturers pay to state Medicaid agencies. Allowing hospitals to profit off 340B while contributing to these unlawful duplicative payments undermines the integrity and long-term sustainability of the program and its ability to help low-income communities afford healthcare.

Surprisingly, no federal agency seems interested in doing anything about it. The Health Resources and Services Administration, which is ostensibly tasked with overseeing the 340B program, recently slapped down a drug manufacturer’s attempt to shine light on and correct the problem.

Here’s how the problem evolved.

Congress created the 340B program to benefit low-income patients by allowing eligible “safety net” hospitals and clinics serving vulnerable populations to buy drugs at substantial discounts. These hospitals and clinics can charge insurers the total price for these discounted medicines and keep the difference. Supposedly, these hospitals and clinics would then use this “spread” to reduce out-of-pocket costs on medicines or offer more charity care to poor, underinsured or uninsured patients.

Unfortunately, this well-intended law was never paired with adequate eligibility, transparency or enforcement safeguards. The rules for qualifying as a 340B hospital are lax, and the program doesn’t sufficiently track or mandate whether these hospitals put the drug spread toward charity care.

Hospitals quickly realized that consolidated ownership structures could extend 340B profit generation into well-to-do ZIP codes, where they could charge insured patients full price and pocket the difference, with no requirement to direct the spread back to facilities serving low-income or vulnerable populations.

The yields have become astronomical. In 2022, hospitals made $44 billion from the 340B program by purchasing drugs at a heavy discount and then reselling them at a considerable markup. That year, 340B hospitals dedicated just a fraction of that take — $18 billion — to charity care.

Hospital executives transformed a program to assist poor and underserved patients into a cash cow. More than two in three 340B hospitals provide less charity care than the national average. Nearly nine in 10 make more from 340B than they provide in charity care.

It’s mind-boggling how this exploitation unfolds in practice. For example, the Cleveland Clinic Hospital entered the 340B program as a “rural referral center” in 2020, despite its location near downtown Cleveland. The facility made $1.35 billion in 2021, with $136 million — about 10 percent of its income — resulting from 340B profits. However, the hospital didn’t offer new drug discounts to poor patients that year.

Similarly, a New York Times investigation found that a major health system, Bon Secours Mercy Health, “was basically laundering money” through a Richmond, Va.-based hospital participating in the 340B program.

This grift is exacerbated by government mismanagement of Medicaid, the joint federal-state health safety net for low-income Americans. Many hospitals are collecting 340B profits on drugs reimbursed through Medicaid, which is legally entitled to rebates that manufacturers must pay to state Medicaid agencies.

Federal law prohibits this type of “double dipping,” but the Centers for Medicare & Medicaid Services and HRSA (under the Department of Health and Human Services) have opted not to implement government watchdog recommendations to stem it.

In a recent attempt to address the double-dipping problem and the lack of a coordinated federal response, Johnson & Johnson announced a plan requiring certain 340B hospitals to request a 340B rebate after first purchasing drugs at the standard price. This would have made it much easier to verify that these hospitals are not collecting duplicate discounts for eligible medicines for Medicaid rebates.

However, J&J’s move to increase transparency was met with swift and widespread outcry from hospitals, their allies in Congress, and, surprisingly, HRSA. The drugmaker elected to defer the proposal after federal officials threatened to prohibit federal reimbursement for its products under Medicare Part B and the Medicaid program, which could have meant potential access challenges and harm to low-income Americans.

It’s time for HRSA and HHS to take action to restore integrity to the 340B program — and ensure that regulators and administrators are doing their jobs. The 340B program was designed to help poor Americans, not enrich hospitals.

Saul Anuzis is the president of the 60 Plus Association. He wrote this for InsideSources.com.