Californians need transparency to prevent abuse of federal drug pricing program

OPINION:Some California hospitals and pharmacies are exploiting a federal assistance program that was created to help vulnerable communities access low-cost treatments. Instead, these healthcare systems and chain pharmacies continue charging some underserved patients high costs for their medicines while pocketing the discounts to boost their own bottom lines. To ensure that low-income and uninsured California families are receiving the intended benefits of this important safety net program, it is important that policymakers take steps to institute proper oversight and transparency to the 340B prescription drug program.

Congress created the 340B Drug Pricing Program in 1992 with a good intent: to protect safety-net hospitals from escalating drug prices by allowing them to purchase medications at a discount from manufacturers. These savings were then supposed to be passed down to the patient, with hospitals providing low- or no-cost treatments to qualifying individuals. However, once these hospitals receive the discount, there is no requirement that they pass the savings on to consumers. Thirty years later, we are seeing some hospitals and pharmacies take advantage of loopholes in the program to profit on the backs of vulnerable, underserved, and underinsured patients.

Congress created the 340B Drug Pricing Program in 1992 with a good intent: to protect safety-net hospitals from escalating drug prices by allowing them to purchase medications at a discount from manufacturers.

I have witnessed firsthand the ways in which some hospitals are abusing the 340B program, first in my years of practice, and now as the Chief Operation Officer of the Medical Oncology Association of Southern California (MOASC). Throughout the years, select Southern California hospitals have bought up practices in order to maximize their patient pool and include more low-income patients, enabling them to access the profits qualified under the 340B program. Others are shipping 340B savings to contract pharmacies as far away as Maine and Puerto Rico rather than keeping the savings in vulnerable California communities.

Memorial Health Services in Los Angeles paid over $31.5 million to settle a dispute with the federal government over its use of the 340B program in 2020. For almost three years, Memorial Health submitted claims to Medi-Cal for outpatient prescription drug reimbursements that were higher than the cost the health system paid for the drugs. The dispute concluded with the admission from the nonprofit that they overbilled Medi-Cal for prescription drugs purchased and reimbursed through 340B.

A recent report from the Center for Medicine in the Public Interest (CMPI) revealed that 72% of private nonprofit hospitals spent less on charity care and community investment than they received in tax breaks. One example is Los Angeles’ own Cedars-Sinai Medical Center which allocated just 1.60% of its total expenses on community benefit spending, with a fair share deficit of $138 million.

The 340B program is clearly falling short of its mandate and is failing to deliver affordable and quality healthcare for some of the vulnerable patients it was designed to serve.

The 340B program is clearly falling short of its mandate and is failing to deliver affordable and quality healthcare for some of the vulnerable patients it was designed to serve. In 2022, the California legislature correctly rejected Senate Bill 939, which failed to include appropriate transparency and accountability for the 340B program. Any discussion of ways to rein in drug costs should begin with an examination of the ways that existing safety net programs are falling short. I urge policymakers to take steps to ensure that hospitals and large pharmacy chains are not putting profits above patients and exploiting loopholes in the 340B drug pricing program to drive up their own bottom lines.

Dr. Warren Fong is Chairman and Chief Operation Officer of the Medical Oncology Association of Southern California (MOASC) and is based in Newport Beach.