How one bad law leads to hospital consolidation and higher health care costs

Americans are under pressure from rising health care costs. The most recent figures from the Centers for Medicare and Medicaid Services show that out-of-pocket patient spending increased 10.4% in 2021, a rate not seen in more than three decades. The cost of monthly health insurance premiums also jumped by 6.5%. And this was all before last year’s rapid inflation squeezed household budgets.

An often overlooked reason for rising health care costs is hospital consolidation. When one healthcare system becomes the only game in town, it effectively turns into a monopoly and can set prices at whatever level it likes. Even just the acquisition of a few small clinics by a large hospital allows them all to raise fees. Patients have to pay more for care, or travel further, which can also be costly.

Many hospital acquisitions these days are driven by one well-intentioned but poorly written policy, the 340B drug pricing program, which became law in 1992 and expanded in 2003. The goal was to help low-income patients get and improve their medicines. Health. Instead, the 340B has turned into a cash grab for the clever operators who game the system.

The program requires drug makers to offer deep discounts to healthcare facilities that serve a large number of low-income, uninsured patients. Eligible hospitals and clinics can usually purchase medications at 25% to 50% off. In theory, the savings should go to helping suffering patients. But the program has some fatal flaws.

As a study in New England Journal of Medicine Note that the program does not require hospitals to use their $340 billion in savings to improve care for disadvantaged patients and imposes only minimal oversight on whether they support the mission at all.

It certainly didn’t seem to help. As the study authors note,Financial gains for hospitals were not associated with clear evidence of expanded care or reduced mortality among low-income patients.

While it clearly falls short of its intended purpose, the 340B program raises health care costs by incentivizing hospital mergers. As written by law, a hospital can take those discounts of up to half at any facility it operates, including affiliate clinics. The discounts boost incentives for hospitals to resell medicines to middle-class and well-off patients with generous insurance coverage.

All of this has encouraged acquisitions to the point that the 10 largest health care systems in the United States now control nearly a quarter of all hospitals. In short, large hospital systems are exploiting the law to sweep ever larger swathes of the healthcare system into 340Bs, including facilities in affluent areas. The number of hospitals and clinics enrolled in the program increased by a staggering 517% from 2000 to 2020. Hospital income rose accordingly: From 2013 to 2018, the top 10 health systems saw total patient revenue increase by 82%, from $505 billion US to 918 USD. billion according to Research from Deloitte Insights.

But while hospital conglomerates are getting richer than 340 billion, the neediest patients see no benefit, and consolidation continues to drive healthcare spending higher.

The only solution is for Congress to review the law, and put in place safeguards that restore the 340B to its intended purpose.

A good place to start is to crack down on eligibility. Program access should be restricted to health care facilities that already serve low-income patients. Then, 340B hospitals must use their deductions to benefit their target population and document how they do so.

Until the politicians fix the law, we’ll all keep pushing.

Sally C. Pipes is CEO and Thomas W. Smith Fellow in Health Care Policy at the Pacific Research Institute. Her most recent book is False Introduction, False Promise: The Catastrophic Reality of Medicare for All. I wrote this for the Dallas Morning News.

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