Unintended Consequences Lead to Higher Healthcare Costs

Patrick Dorinson
Host of The Cowboy Libertarian Radio Talk Show in Sacramento

“One of the great mistakes is to judge policies and programs by their intentions rather than their results.” Milton Friedman

Every time Congress passes a law that establishes some new program or benefit, the members pat themselves on the back and tell us what problem or perceived problem the program is intended to address.

Because in every piece of legislation ever passed in the history of the Republic there is an unwritten “amendment of unintended consequences.” No member puts it into the legislation and it is never voted on but it is there nonetheless.

And while a particular program may be well intended it is the unintended consequences that usually create mischief and cause problems.

The real work of implementing any new program is left to the legion of Washington bureaucrats and regulators who write the actual rules under which it will operate.

However, try as they might many times the regulators aren’t able to address every contingency nor can they address how others might interpret the regulations.

So it is with a program that was originally intended to address access to prescription drugs for the poor and uninsured, but has instead become a profit center for some ostensibly non-profit hospitals.

How did that happen you might ask? To understand how you have to go back almost 25 years to 1990.

Before that time, drug manufacturers offered hospitals and clinics that served the poor and uninsured discounts on prescription drugs.

Then Congress in their infinite wisdom took this voluntary drug discount program and made it mandatory for anyone selling drugs through Medicaid believing that this would address the same problem.

But as with many programs passed by the central planners in Washington, it had the opposite effect.

Because Medicaid had to get the lowest prices the drug manufacturers could no longer offer them to those hospitals and clinics as they had done for years before 1990.

Then in 1992, realizing that in their efforts to cure one problem they created another, Congress created the 340B program ordering that drug companies offer deep discounts on outpatient drugs to the same clinics and hospitals that they used to work with voluntarily.

Once it was made mandatory, the eyes of the hospital administrators and their bean counters got as big as saucers.

They quickly figured out they could not only get the drugs at a discount as mandated by law but they then could dispense these medicines to their insured patients and charge the insurance company full price, get reimbursed and give themselves a big fat profit

In 2012 Duke University Hospital in North Carolina drove a truck through the 340B program. They bought almost $66 million in drugs and with their mandated discount saved $48 million. They then sold the discounted drugs to insured patients for $135 million and billed the insurance companies at full price.

I don’t know about you but where I come from that is fraud.

But how did they get away with it?

A basic principle of English constitutional law upon which our legal system is based states, “That which is not forbidden is allowed.”

Since Congress wrote a law with no real enforcement mechanisms or oversight the hospitals read through the law and realized what they wanted to do was not forbidden so they figured it was allowed.

And they profited handsomely.

When the 340B program was put into place back in 1992 the geniuses in Congress said only 90 hospitals would be eligible to participate. But in 2011, the actual number of participating hospitals was 1,675..

Which just goes to show, when Congress makes a pot of money available, someone will find a way to get a piece of it.

With Obamacare and the expansion of Medicaid, many more hospitals will get in on the deal before Congress closes this giant loophole.

And there is now evidence that these so-called non-profit hospitals are jacking up the price on drugs for cancer treatment.

I wonder how the insurance companies feel about having to pay for marked-up drugs?

But however they feel one thing is for certain. Higher drug costs will lead to higher premiums in the future.

Senator Chuck Grassley, a frequent critic of 340B, has asked for an audit of the program and its participants.

In anticipation of this, the 340B Coalition, the organization created to keep the program intact, is meeting in San Diego at the ritzy Hotel del Coronado. One of the main topics to be discussed according to their flier is “how to prepare for an audit and the implications of key audit findings.”

Sounds like lessons in covering ones backside to me.

In the end those who will get hurt the most by this fraudulent and greedy behavior on the part of the non-profit hospitals are those who the program was intended to help in the first place — the poor and the uninsured.

340B is a perfect example of Milton Friedman’s admonition that it is a mistake to judge policies and programs just by their intentions and not their results.

And in this case the results have cost millions and driven up the already high cost of healthcare in America.

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