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Are hospitals responsible of making money on drug subsidies offered to less affluent patients?

A startling discovery shows that hospitals are making considerable profit of drug subsidies. Should the hospitals be ethically allowed to book their funds as profits and why there is a need for more accountability in such cases?

The medical system tries its best to take from the ones who have extra and distribute to the ones who need it most.

A discount program, commonly called as 340B, named after the Veterans Health Care Act that led to its creation in 1992 – is a specifically targeted program that enables discounts on expensive prescription drugs to hospitals that need to be distributed to lower income people. The idea is excellent; drug companies are responsible for the financial hit while the end users are biggest beneficiary of the benefit in a trickledown effect.

The idea though finds itself under intense scrutiny as it appears that there are some misgivings involved under the process. The hospitals are not supposed to make money from the process – they are supposed to provide the benefits to the people who are unable to afford medicine without a subsidy on it. This condition excludes the patients with full medical insurance making them a segment which should not get benefits from the plan.

To understand briefly, this is what is happening
• Hospitals get subsidy on specific medicine, equipment and other necessary items from the drug companies.
• The complete financial hit for the discounts is taken by the pharmaceutical companies or equipment manufacturers
• Hospitals stock the medicine and based on prescription, pass the medicine down to the patients
• If the patients have full medical cover, the costs of the medicine are reimbursed
• In case the patient has full medical coverage, the medicines are reimbursed at full price and not the discounted price that they were bought at. This creates a parity in the price difference resulting in profits for the hospitals
• The money is booked as profits and is used in operational activities

There are more than 30 % hospitals in the United States affiliated with the current program. The problem starts to raise its ugly head when accountability totally evaporates from the system. The hospitals also find that serving people with full medical insurance is more beneficial to them, this creates a conflict of interest (this is not implied that the hospitals encourage in any way dishonest practices but presented as a mere fact that may or may not take place) making it more beneficial for the hospitals to take care of affluent and fully insured people.

The lack of accountability is visible at various steps, the medical supplies purchased from the drug manufacturer’s result in no feedback to the drug company. All the patients who were given a particular drug may have insurances creating profit for the hospital but for the drug company that took the financial hit, there seems to be no benefit at all. Similarly the insurance companies that tend to fulfill the deal get the raw end of the stick as for them there is no benefit.

The hospitals claim that the money helps them to function better, create more facilities for OPD (Out-patient department) patients, create better facilities for IPD (In-patient department) and arrange for better mental health facilities. The hospitals also claim that there is no segregation in dealing between patients having full insurance cover to parents having troubled past. They argue in fact that the hospitals having extra cash are able to take care of charity activities and help the hospital with extra cash that has many uses.

The medical companies totally fail to understand the explanation from the hospitals and truly speaking their point of view is not fully insensitive or invalid. They are the ones that take the financial hit and must have access to the information about the financial loss that they have incurred. The medical companies conclude that there is no evidence of hospitals and clinics giving extra money to charities or spending extra time for charity events. The benefits they conclude are lost within the hospitals with little or no visibility to the outside world.

The cross subsidy that is aimed for a better purpose must be utilized in such a manner that it becomes beneficial to everyone in the system. Rena Conti, a professor at the University of Chicago who has been able to do extensive research on the program observes that the cross subsidy complex medical system in the United States should work in a transparent and efficient manner. Conti concludes her study stating that the program is being misused as it is not meant to be a beneficial program for just hospitals alone.

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