A federal law requires manufacturers to sell drugs to nonprofit hospitals at a steep discount. The theory is that hospitals will then sell the drugs at a lower cost to the low-income people they serve. But there’s no requirement that they pass along those savings, so in reality, hospitals pocket the profits.

That’s how the federal 340B drug pricing program works. The poor effects from the program are well documented:

• A small, 104-bed hospital in a low-income area of Richmond, Virginia, had become the most profitable facility in the state, the New York Times reported in 2022. The hospital had slashed programs for the poor and was “basically laundering money...to its wealthy outposts.”
• The quantity of discounted drugs hospitals purchased through the 340B program rose from $9 billion in 2014 to $38 billion in 2020, two studies found in 2022. Charity spending by these hospitals declined, however.
• In Michigan, research shows that hospitals taking part in the 340B program are more profitable, but they spend 20% less revenue on charity care than hospitals as a whole.

Despite this program’s dismal record, Michigan lawmakers want to expand it. House Bill 5350 and Senate Bill 1179 would prohibit manufacturers from limiting hospitals’ authority to purchase the discounted drugs. More importantly, it would allow pharmacies that contract with hospitals access to discounted drugs as well.

The federal 340B program has become a slush fund that simply shifts profits from drug manufacturers to certain hospitals. There’s scant evidence that it helps bring down health care costs, lowers drug costs for patients, or increases charity medical care.

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