Lessons From the Mega-Reg

Just what is a perverse cross-subsidization? Is it seen only in the eye of the beholder?

The seemingly never-ending tussle over the clarification of the 340B drug discount program exemplifies how difficult it can be know just how, if at all, cross-subsidization works in our mixed up health care system.  The program, created in 1992, was designed to provide reduced acquisition cost pharmaceutical drug discounts to health care facilities disproportionately serving low-income patients.  

Now one third of our hospitals are enrolled, but we don't know if this is because of how we count the participants or because the value of acquiring expensive pharmaceuticals at the 340B acquistion cost and billing them out at commercial insurance rates was just too attractive to pass up.  Theories abound. You see, at present, the 340B subsidy does not have to flow to the commercial insurer, or Medicare, or anyone else — it is the facility's to dispense as it wishes.

Something is surely up. The number of health care facilities participating in the program has doubled from 2001 to 2011. And the OIG has taken an interest in the program's operation.

The American Hospital Association cites necessary subsidization of services to the poor and indigent, always a powerful claim in an entire health insurance system arguably built on cross-subsidizing care to the poor with higher charges to the commercially insured. One problem with this, however, is our failure to monitor this  cross-subsidization in any significant way. And, as Rena Conti points out, might the cross-subsidization not be seen as perverse if the 340B savings are not passed along to Medicare or the commercial insurer but, rather, retained by facilities that might not serve the poorest among us?

So much of this hinges on how we define "patient" in the 340B program and on how we want the program to work.  The 2014 failed Mega-Reg attempting to clarify patient definition — among other things — collapsed in the face of litigation.

What are hospitals and pharmaceutical companies really fighting over?  Money, of course, but also the very purpose of the program.  Is the 430B program supposed to provide the subsidy to the low income individual to improve access to expensive pharmaceuticals?  Or, is it supposed to provide a general subsidy to the operation of a safety-net hospital?