Sometimes it is hard for hospitals to provide expensive care to poor patients. When a low-income patient needs $20,000 of chemotherapy, a hospital loses money if that patient cannot pay for the medicine, or pays through Medicaid, with its relatively stingy reimbursement. Fortunately, the federal government created a program for hospitals that care for a disproportionate share of low-income patients, whereby they can purchase those medicines at a discount. The program is called the 340B Drug Pricing Program and, unfortunately, hospitals are taking advantage of the program, leaving taxpayers on the hook.
Here’s how the program works. Under 340B, if more than 11.75% of a hospital’s patients are low-income, the hospital can purchase the medicines at a steep discount. When, subsequently, the hospital doesn’t get paid for the medications – say, in the case of an uninsured patient with acute leukemia – the discounts reduce the hospitals losses. In other cases, when the hospital cares for Medicaid recipients (a program that often doesn’t cover hospital costs adequately), the discounts once again reduce their losses.
Here’s how the program fails. When the hospital treats a Medicare enrollee, it will typically receive a payment that is significantly greater than its costs. In those circumstances, the hospital will have bought the medicine at a discount while selling it at full price.
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