The Michigan Senate overwhelmingly passed a bill that “prohibits drug manufacturers from restricting hospitals’ access to discounted drugs under the federal 340B Drug Pricing Program.” Currently, hospitals can force drug manufacturers to sell them products at a deep discount and then resell those drugs for a large gain.

MIRS news covered the legislation as it passed the Michigan Senate. But the arguments made by Senate Bill 94’s advocates don’t stand up to scrutiny.

Witnesses who testified in a Senate committee hearing repeatedly emphasized that hospitals need this money. A representative of a physicians group said the money hospitals gain under 340B “frees up funds for other things, like transportation for patients to and from appointments.” A hospital representative said the money is used for charity and to provide higher quality health care because “caregivers answer to patients.”

There is little or no evidence of either of claim. Only some hospitals can take advantage of the 340B program, and the committee heard no evidence that hospitals in the program do a better job serving patients. As the program has massively expanded — from $9 billion a decade ago to $38 billion today — hospital costs have only gone up. As the Mackinac Center previously noted, hospitals taking part in the program tend to earn more profits but provide less charity care.

Hospitals, pharmacies, insurance companies and drug manufacturers should bargain over the cost of medicine among themselves. It isn’t appropriate for state lawmakers to force one industry to sell its products to another at discounted prices, especially when the chief result is to shift profits from one place to another.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.