AJC Watchdog: First Alert

Keeping watch on those who hold the public trust and money

Congress asking questions about lucrative drug discount program

A federal drug discount program that is worth millions to Georgia hospitals is facing new scrutiny in Washington.

The U.S. House Committee on Energy and Commerce, which oversees health issues, this month expressed concerns about the little-known "340B" program and requested documents from the agency that oversees the program.

"The Committee is concerned about the 340B program's rapid growth without additional and proportional oversight," wrote Committee Chairman Greg Walden, R-Oregon, in a letter to the Health Resources and Services Administration, which oversees the program. The letter was also signed by the chairmen of two Energy and Commerce subcommittees -- Rep. Michael Burgess, R-Texas, and Rep. Tim Murphy, R-Pennsylvania.

An investigation of the 340B program by The Atlanta Journal-Constitution, which was published in Sunday's print edition, found that some metro Atlanta hospitals that do little charity care have used the program to gain massive discounts on outpatient drugs.

The way 340B works, a hospital that qualifies for the program can get deep discounts on outpatient drugs, but it can charge insured patients the regular price and use the profits however the hospital sees fit. So, if you’re a cancer patient getting treatment at a hospital-owned chemotherapy center, the hospital can get a huge discount on your medications, charge you and your insurance company regular prices and hold onto profits — perhaps for charity care, or maybe to pad the CEO’s next bonus.

When the program first started in 1992, it was primarily used by Grady Memorial Hospital and similar hospitals across the country that are devoted to serving the poor and uninsured. The 340B program's discounts continue to be vital to Grady's work today: it provides hundreds of thousands of life-saving outpatient prescriptions every year and charges most patients $5 per prescription. The 340B program makes that charitable work more affordable for Grady, and even pharmaceutical companies that are critical of the program's growth say the discounts make sense for hospitals that focus on charity care.

The letter from Energy and Commerce committee leaders cited research that hospitals participating in the program save between 24 and 50 percent of the average wholesale price for covered outpatient drugs. The committee said that while the agency that oversees the program has been publishing its audit findings since 2012, information is still sparse because of a lack of reporting requirements. The oversight agency "does not track how much covered entities make through the 340B program, nor how they used the program savings," the letter noted. "Further, there is no legislative requirement that requires hospital to use 340B savings in a specific way."

The AJC asked local hospitals that have expanded their use of the program in recent years how much the savings were worth and what the hospital used the money for. Only Emory Healthcare and Grady Memorial Hospital agreed to reveal the details, which the AJC reported on in the story published Sunday. Northside Hospital, one of Georgia's largest users of the program, declined to provide specifics about its use of the program, but said its participation benefited patients. According to cost reports filed with the federal government, charity care consumed just 1.7 percent of Northside’s expenses in 2016.

An organization called 340b Health, which represents more than 1,300 hospitals that get the drug discounts, commented on the Energy and Commerce letter this month. "We welcome balanced congressional oversight of all stakeholders – healthcare providers and drug manufacturers," the group said.

Hospitals say the 340B sales make up less than 3 percent of the nation's prescription drug spending and barely dent the bottom lines of the nation's affluent pharmaceutical companies.

"Hospitals and other healthcare providers pay drug companies about $6 billion less for covered outpatient drugs than they otherwise would pay," 340B Health said in its statement responding to the committee's inquiry. "While $6 billion may not be a significant percentage of total drug spending, it is a critical lifeline for safety net hospitals."

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About the Author

Carrie Teegardin is on the investigative team. She is a graduate of Duke University and has won numerous national journalism awards.