A federal appeals court just dealt a huge blow to hospitals that pad their bottom line with cash intended for needy patients.
Federal law requires drug makers to sell their medications at steep discounts to hospitals and clinics that serve poor communities. The court threw out regulations requiring drug makers to sell drugs at a discount to each and every pharmacy an eligible hospital contracts with, regardless of whether the drugs are for poor patients.
The ruling is great news for Americans who need care but have a hard time affording it. It's also a cautionary tale about how legislation intended to help the poor got twisted bureaucratically into a way for hospital administrators to get rich.
Congress created the system in question by enacting Section 340B of the Public Health Service Act of 1992. Under 340B, hospitals that serve needy patients, including the uninsured and underserved, can buy drugs from manufacturers at highly discounted rates, similar to those offered to Medicare. On average, 340B participants receive 59% off list prices.
Unfortunately, 340B doesn't explicitly require hospitals to pass on discounts to needy patients or otherwise use the savings to provide free or discounted care. Instead, hospitals and pharmacies use 340B to buy cheap drugs for which they often charge full freight.