Massive Fraud Found in Federal Drug Pricing Program

Investigative journalist Nick Shirley created a nationwide sensation when he uncovered $110 million in suspicious government payments to daycare centers operated by Somali-Americans in Minnesota in “one day alone.”

This successful effort to fight fraud received praise from the Trump administration. It also led to concrete action as President Donald Trump signed an executive order establishing an official “Fraud Task Force.” Trump selected Vice President J.D. Vance as the “Fraud Czar” to lead this campaign.

The President called the problem “massive and pervasive” with “numbers so large” that if the task force is “successful, we would literally be able to balance our American Budget.”

Vance’s task force acted quickly, targeting the fraud rich state of California. Their first successful investigation uncovered “an alleged $50 million hospice and healthcare fraud scheme in Los Angeles.”

These findings are just the tip of the iceberg as fraud is pervasive throughout federal and state governments. A perfect example is the 340B Drug Pricing Program, which was established in 1992 when Congress passed legislation to provide healthcare assistance to low-income and rural communities throughout the nation. The bill required “pharmaceutical manufacturers to sell outpatient prescription drugs to participating health care facilities at discounted prices.”

Under the program, providers purchase drugs at steep discounts but are reimbursed by insurers and public programs at standard market rates. However, there are no federal requirements that providers report how the revenue generated through these discounts is used or whether patients receive a direct financial benefit.

These savings were supposed to be offered to low-income patients who needed financial assistance purchasing medication. Unfortunately, the evidence shows that the savings have not been provided to patients.

According to U.S. Representative Earl “Buddy” Carter (R-GA), “340B was intended to give low-income and vulnerable patients access to affordable medicines. The program has rapidly expanded, and a lack of transparency has allowed some entities to pocket the savings without passing them on to patients.”

What a shocker, the costs of a federal program are skyrocketing, and the intended beneficiaries are being shortchanged. It happens constantly throughout the bloated federal government, but, in this case, the consequences are dire, negatively impacting the health of vulnerable Americans.

U.S. Representative Diana Harshbarger (R-TN) noted that the 340B program has “gaps” that “have let these discounts be misused and diverted from the goal of better access and lower costs for patients most in need.”

Since President Trump has not only emphasized fighting fraud, but also lowering healthcare costs, congressional action is desperately needed on this issue. To address this problem, a bill has been introduced by Representatives Carter and Harshbarger, the 340B Affording Care for Communities and Ensuring a Strong Safety-Net Act (340B ACCESS Act).

The bill would provide “critical oversight and transparency” for a program that has not been adequately monitored, and the cost of U.S. taxpayers is spiraling out of control.

As evidence, let’s examine the “prime vendor program,” which is used by 90% of the participating health care facilities participating to purchase drugs. As reported by the Congressional Budget Office, in 2010,  these health care facilities spent $6.6 billion to purchase drugs. By 2021, the costs had increased almost 700% to an astounding $43.9 billion.

Along with the increasing costs, other issues must be investigated. While the program has expanded, congressional oversight has been minimal and there has been scant evidence that patients in need are benefitting. Representative Carter believes that “Congress must act to restore the integrity of the program to better protect vulnerable patients served by safety-net providers.”

Among the many goals of the 340B ACCESS Act are two that are especially important. Namely, to “ensure 340B prescriptions are offered to patients at a discount,” and “prevent middlemen and for-profit entities from profiting off the 340B program.” The bill also requires enhanced transparency by requiring participating entities to report how funds are being utilized.

Undoubtedly, congressional action is required to fight fraud and abuse in our healthcare system. In Louisiana, a report by HEAL Collaborative discovered that among 340B participating entities, between 2014 and 2022, there was an increase, per bed, of 22.5% in assets, “defined as any resource with financial value that the hospital controls.”

However, while assets grew, during the same time period, there was a 41% decrease in uncompensated care per bed. Instead of growing uncompensated care per bed as assets grew, Louisiana healthcare facilities abused the 340B program to increase their profits.

Due to this abuse, Louisiana consumers are keenly interested in reform in the 340B Drug Pricing Program. According to a survey of Louisiana residents conducted by the National Consumer League, “77%…agree that hospitals receiving 340B discounts should be required to pass those savings on to low-income and vulnerable patients.” There is also strong support for greater transparency as “74%…support defining in law who qualifies as a ‘340B patient’ to ensure the right patients benefit from the program.”

Reform is needed in Louisiana and nationwide, especially since the program has grown so large and is projected to expand even more in the years ahead. Currently, the 340B  program “is the second-largest federal prescription drug program, second only to Medicare Part D, and is now larger than Part B, Medicaid, and TRICARE.”

With an annual growth rate of 23%, it will “surpass Medicare Part D as the largest government-run drug purchasing program in 2027.”

A major reason for the growth was the passage of the Affordable Care Act, which expanded the number of “sites” eligible for the program. In 1992, there were just 392 “covered entities” and affiliated facilities that were eligible for the program. By 2023, that number had skyrocketed to 56,730.

As the program has grown, the services for low income Americans has decreased by 15%, despite the clear purpose of the original legislation.

Until new legislation is passed requiring hospitals to spend their profits from the program on vulnerable populations, as the 1992 bill intended, these “sites” will continue to financially benefit, while ignoring those in need.

Jeff Crouere is a native New Orleanian and his award-winning program, “Ringside Politics,” airs Saturdays from 1-2 p.m. CT nationally on Real America’s Voice TV Network & AmericasVoice.News and weekdays from 7-9 a.m. & 6-7 p.m. CT on WGSO 990-AM & Wgso.com. He is the President and General Manager of WGSO Radio, a political columnist, the author of America’s Last Chance, and provides regular commentaries on the Jeff Crouere YouTube channel and at Crouere.net. For more information, email him at [email protected].