Op-Ed: Hunter Hamberlin and Christina Smith: Americans deserve transparency in our healthcare system
Cutting wasteful and ineffective spending has been a priority for the Trump administration, and mini Department of Government Efficiency (DOGE) efforts have been proposed in many states, including Texas. Unfortunately, some state efforts would derail these otherwise-laudable efforts. In particular, the Texas Legislature is seriously considering a bill that would lock in the waste and inefficiency of a drug policy boondoggle known as the federal 340B Drug Discount Program. Lawmakers should kibosh this flawed bill and target aid to patients that need it the most.
This program was created to aid vulnerable patients, but it has ended up wasting money while failing to deliver the intended benefits and costing taxpayers billions of dollars through its flawed discount-and-reimbursement scheme. Large tax-exempt hospitals and pharmacy chains are profiting off a program intended to help vulnerable communities and the patients living in them. Many large hospitals purchase drugs at the steeply discounted 340B price, but bill insurers — including taxpayer-funded insurance programs — at the much higher full price, banking the difference as profit. This is far from the original intent of the program.
The 340B program has grown out of control. In 2023, 340B reached $66 billion in discounts from pharmaceutical manufacturers, making it the second-largest federal drug program. But much is not known about how that money is spent because big hospital systems aren’t required to share those discounts with patients or even explain how they spend the 340B profits that they keep. Most patients aren’t even aware that they are in a 340B hospital or that they will be categorized as a 340B patient.
Big hospital systems extend their ability to profit from 340B pricing by entering into agreements with “contract pharmacies.” In 2009, there were less than 800 contract pharmacies. That number skyrocketed to more than 33,000 in 2023. Recent research shows those contract pharmacies tend to be clustered in wealthier neighborhoods, rather than serving vulnerable populations, which was the program’s intent when established in 1992. Texas 340B hospitals have more than 3,500 contracts with 340B contract pharmacies — including a third with out-of-state pharmacies. Of those in Texas, only 20 percent are in zip codes where the average household income is lower than the state median.
Most Americans — more than 150 million — are on employer-sponsored health plans. They pay a price for 340B discounts, which displace manufacturer rebates on the same drug, raising costs for employers and workers. Health research company IQVIA found that 340B costs Texas employers and workers $353 million annually in lost rebates, including $57 million in costs to the government as a healthcare payer.
Texas policymakers’ response to this large and mystifying program is puzzling. The legislature is considering HB 3265, a bill backed by big tax-exempt hospitals to lock the 340B Program in place and prevent companies from requiring more transparency and accountability for rebates on prescription drugs.
The legislation under consideration by the legislature moves policy in the opposite direction from recent activity by the Trump administration to bring needed transparency to 340B. In April alone:
President Trump issued an Executive Order that laudably included improvements to the 340B program to increase accountability and reduce waste. One provision requires a survey to determine what hospitals pay for 340B-covered outpatient drugs. After conducting the survey, adjustments will be proposed to align Medicare payments with the “cost of acquisition” for those drugs. This acknowledges that 340B is pushing up costs for Medicare and Medicaid.
The Trump administration drafted a plan to move oversight of 340B from the Health Resources and Services Administration to the Centers for Medicare and Medicaid Services, an agency with greater technical expertise and oversight ability.
The Republican majority on the U.S. Senate Health, Education, Labor and Pensions Committee, led by Senator Bill Cassidy (R-LA), issued a detailed report on 340B, finding a need for more “transparency and data reporting.” Its recommendations for reform include: requiring covered entities to provide detailed annual reporting on how 340B revenue is used to ensure direct savings for patients; requiring transparency and data reporting for contract pharmacies in the 340B program; and providing clear guidelines to ensure that manufacturer discounts actually benefit 340B-eligible patients.
The legislature should reject HB 3265 and instead insist on more transparency and accountability in the 340B program at the federal level. Patients and taxpayers can benefit from low healthcare costs, but only with fine-tuned policies that avoid blank checks to affluent institutions.
Hunter Hamberlin of Houston, TX, is the State Policy Manager for the Taxpayers Protection Alliance. Christina Smith is the Director of the Taxpayers Protection Alliance’s Consumer Center.