Michigan Senate Passes SB 94, Mandating Drug Supplier Participation In 340B Discounts

Michigan Hospital Association definitely has its own narrative on this issue!

Previous Michigan and Congressional and SCOTUS MHF Forum posts tell the rest of the story - 340B serves hospitals, not necessarily patients.

I'm with Jarrett Skorup: give the money to the needy. Their shopping will benefit all of us.

Like most federal programs ostensibly for the impoverished, 340B is a grift which enriches the wealthy:

https://www.realclearhealth.com/articles/2025/03/27/hey_doge__check_out_340b_and_where_the_money_is_going_1100327.html

Hey DOGE – Check out 340B and Where the Money Is Going
By Jack Kalavritinos - March 27, 2025

The unassuming names assigned to government programs never tell the story. The 340B Drug Pricing Program is a perfect case in point. Far from encompassing a boring collection of regulations, 340B is a federal drug program second only to Medicare Part D in size. And the possibility of unintended consequences usually grows along with a program’s scope.

In an ideal world, the twin engines of government and commerce would work together for the common good. In the real world, however, even the best of intentions can go awry. The 340B program was designed to provide discounted drugs to hospitals and clinics that service high numbers of patients in financial need. In practice, the government is mandating large discounts and hospitals are turning around and charging a significantly marked-up price to sick patients.

It is unconscionable and needs to stop.

In 2018, a Government Accountability Office (GAO) report uncovered a disturbing lack of oversight in the 340B program, leading to widespread abuses. To date, the Health Resources and Services Administration (HRSA) has refused to implement the GAO’s recommended reforms. Not only that, HRSA continues to actively block drug manufacturers from enacting common-sense steps to ensure that the discounts are going to eligible patients.

One of those steps would be both simple and seismic: instead of offering 340B pricing as an up-front discount to hospitals and clinics, manufacturers should be allowed to first verify whether the organizations are eligible and in compliance with the laws governing the program. This single measure would reduce bureaucratic overreach and ensure that the program worked as intended, supporting true safety net providers and patients in need.

This should not be a controversial issue. When dealing with other federal health care programs, manufacturers typically receive detailed data before providing access to mandated or negotiated price concessions. 340B hospitals and clinics, however, have actively resisted providing the most basic data to support verification of appropriate pricing.

What do they have to hide? And why are so few people asking this question?

The 340B Drug Pricing Program should be called the 340B Drug Discount Giveaway. Boondoggles like this make a mockery out of genuine attempts to benefit society. In an op-ed for Real Clear Health, Howard Dean, former head of the DNC, put it well: “Corporate greed is a powerful motivator. When our lawmakers draft legislation, they really ought to have a special committee to evaluate how corporations might exploit it.” If an organization such as a hospital is on the receiving end of a government program and finds a legal way to use the program to advance its business, we have to expect that the organization will take advantage. The blame is then shared by the bureaucrats who look the other way.

Some manufacturers have tried to take their own steps to improve transparency and program integrity. Yet under the Biden administration, the HSRA threatened to remove those manufacturers from the 340B program, which would have resulted in their medicines being removed from Medicaid and Medicare Part B. And the HSRA has worked to impede the efforts of drug manufacturers to take reasonable steps to audit and dispute 340B claims.

The 340B program is just one of many reminders of the abuse and waste and that exists in Washington, D.C. When well-intentioned government programs are abused and stray far from their original purpose, our elected officials owe it to us to step in and fix the problem. And that’s where we are with 340B.

Jack Kalavritinos has more than 25 years of experience in public affairs and health communications.  He served as director for Intergovernmental and External Affairs for the U.S. Department of Health and Human Services (HHS) and as the associate commissioner for External Affairs at the Food and Drug Administration (FDA). He spent over seven years at Medtronic on policy initiatives. He also served as a senior official at the Office of Management and Budget (OMB) and as the White House Liaison at the Department of Labor.

More on the pernicious use of 340B drug discounts by hospitals:

https://www.realclearhealth.com/articles/2025/06/26/profiting_off_the_poor_1118914.html

Profiting Off the Poor: How Hospitals Exploit a Drug Program Meant to Help People in Need
By Justin Leventhal - June 26, 2025

What started as a well-meaning safety net program has morphed into yet another federal case study in unintended consequences: a drug discount program that lets billion-dollar hospital systems exploit discounts meant for the poor while rural emergency clinics are left to fail. The 340B Drug Pricing Program is a classic example of how a good idea—helping the poor access medicine—gets hijacked when government intervention meets bad incentives and zero accountability.

The 340B program was created after the Medicare Best Price Rule inadvertently eliminated charitable drug donations. Previously pharmaceutical companies had donated or provided discounts for medicine as charity for hospitals serving poor communities. However, once instituted, the rule required drug companies to sell medicine to Medicare at the lowest charitable rates. Any company that had previously donated medicines would be required to charge Medicare $0 if they continued to donate.

The 340B Drug Pricing Program sought to fix this first unintended outcome by requiring manufacturers grant discounts to hospitals serving large portions of low-income patients. The program takes into account Medicaid and certain Medicare beneficiaries receiving financial aid that a hospital serves to determine if it is eligible.

But this system has so little transparency that, while well intended, the 340B program is often misused. Large hospital systems routinely generate revenue from fully insured patients who should be ineligible for 340B discounts. Once a hospital receives the discounted drugs it is not required to disclose how the savings are used. Hospitals are free to sell the discounted drugs at normal price through a network of their partner pharmacies in affluent areas and pocket the discounts as revenue. There is not even a requirement that the savings be passed to the patient.

From 2010 to 2020 contract pharmacy arrangements grew from about 1,300 to over 30,000. More than half of contract pharmacies are in areas with significantly higher income than the hospital’s location. The abuse of the system has caused its costs to balloon from a $2.4 billion program to $63.3 billion one between 2005 and 2023.

While hospitals in rich urban areas treat the 340B program as a piggy bank, poor rural hospitals struggle to serve high numbers of entirely uninsured patients. These hospitals are locked out of the 340B program entirely.

The large urban hospitals can get into the 340B program relatively easily by seeking out the patients they need. Because they can qualify based on the number of Medicaid and low-income Medicare patients they treat, a hospital can buy specialty clinics to attract additional 340B eligible patients.

Meanwhile, rural emergency hospitals (REHs) are not included on the list of 340B eligible hospitals. REHs were created to replace failing rural hospitals that could not maintain inpatient treatment with 24/7 emergency care. These hospitals are known for treating a particularly high proportion of uninsured patients. Uninsured patients do nothing to qualify a hospital as a Disproportionate Share Hospital, leaving the hospitals and their uninsured patients to face the full cost of their drugs.

Fixing the program isn’t difficult, assuming Congress is willing to act. The first step would be to include REHs in the 340B program, which one bill currently in the house would do. However, that is only the first step.

Congress must also introduce transparency into the system. Who the discounts are intended for, and whether they receive them should not be left to faith. Patients and insurers need to know if they are being claimed to get discounted drugs and if those savings have been passed to them. Discounts should be allowed only if the medicine is going to a 340B patient and is directly passed on to that patient.

By closing the loopholes that allow large systems to game the program and by extending access to truly underserved rural hospitals, Congress can restore the 340B program’s original mission. With the right reforms, 340B can serve the patients it was intended to, instead of serving hospitals with the resources to game the system.

Justin Leventhal is a senior policy analyst for the American Consumer Institute, a nonprofit education and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow them on Twitter @ConsumerPal.