Out-of-State Pharmacies are Profiting from Federal Program Designed to Reduce Health Costs for Vulnerable Californians

When the COVID-19 pandemic again reinforced that California’s communities of color disproportionately bear the burden of public health threats, some California lawmakers made promises about closing gaps in health equity and access. More than two years later, however, many Californians inhabited by its most diverse populations are still struggling to access and afford their health care. One federal program – the 340B Drug Pricing Program – is a particularly troubling example of how empty promises leave vulnerable California communities in the lurch and how a lack of transparency in health care allows corporations to grow their bottom lines at the expense of patients.

In 1992, Congress created the 340B Drug Pricing Program to expand access to treatment and care for uninsured and low-income Americans. Through the 340B program, hospitals who served a disproportionate share of vulnerable patients could purchase medicine at heavily discounted prices, with the intention that those savings would be used to increase affordability for low-income patients.

Thirty years since its enactment, research suggests that some hospitals may be exploiting the 340B program to generate greater profits while not passing the savings on to patients. Discounted drug purchases made through the 340B program totaled at least $38 billion in 2020, which is a 27 percent increase since 2019. For example, in 2020, Memorial Health Services in Los Angeles admitted to overbilling Medicare for drugs through 340B and paid $31 million in damages to the federal government. Some hospitals have accepted 340B discounts on drugs and subsequently limited the number of uninsured patients who could use their services.

One of the ways that hospitals have exploited the 340B program is by contracting with more and more pharmacy chains so that they can dispense more medication and pocket more of the 340B discounts. In the past three years, the number of relationships that California 340B hospitals have with contract pharmacies has more than doubled. California 340B hospitals currently have contract pharmacy relationships with more than 3,200 pharmacies. Even more troubling is that more than 1,100 of those pharmacies are not even in California. Rather than using 340B discounts to defray costs for patients in local communities, California hospitals are shipping those savings to pharmacies in far-flung places like Maine, all while pocketing the profits.

State legislators have introduced Senate Bill 939 as a means to strengthen the 340B program, but I am concerned that, as currently written, SB 939 may do the opposite. The bill does not require enough transparency and accountability from California hospitals and pharmacies to ensure that California patients are actually seeing the benefits of the program. SB 939 enshrines in the law many of the opaque business practices that currently prevent us from knowing this information. In fact, we know that many vulnerable patients continue to pay full price for their medicines.

I urge California legislators to take action to ensure that the 340B program is functioning properly to increase access to care and treatments for vulnerable California communities. A good first step will be requiring additional transparency as part of SB 939.

Dr. Robert Bitonte is a Los Angeles physician and president-elect of the American College of Legal Medicine (ACLM).

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