By Dr. William S. Smith
and Chris Braunlich
Nonprofit hospitals in low-income neighborhoods should be the backbone of the American safety net system for low-income people who lack insurance. Instead, thanks to a federal program called 340B, many nonprofit hospitals have made maximizing revenue their primary goal, not providing charity care. Thanks to a New York Times investigation, Richmond Community Hospital has become the starkest example of a nonprofit hospital that exploits the 340B program while reducing medical services available to the distressed community surrounding the hospital.
The 340B program was created by Congress in 1992 and was intended to allow about 500 hospitals in low-income areas to purchase drugs at substantial discounts. It was thought that, with these discounts, nonprofit hospitals could provide more free care to the distressed communities where they were located.
However, the law was poorly written, and hospitals soon discovered that they could “arbitrage” these drug discounts into a profit center. How could they do this? In short, buy low and sell high. As The New York Times story explained, Richmond Community can buy a vial of the cancer drug Keytruda at a discounted price of $3,444, yet can bill the local Blue Cross health plan $25,425 for that same vial, for a profit of $22,000 on one patient’s prescription. Continue reading
