Federal regulators and law enforcement just announced that they’ve recaptured $2 billion in Medicaid payments that were made improperly or fraudulently last year.

Now, regulators from the Department of Health and Human Services are turning their attention to another source of potential overpayments – a federal drug-discount program intended to help low-income Americans access prescriptions. In recent years, hospitals and pharmacies have exploited this program to boost their profits instead of helping vulnerable patients.

Lawmakers and regulators must rein in the program to protect patients.

Passed by Congress in 1992, the 340B program requires drug companies to extend a steep discount to hospitals that serve a disproportionate share of poor and uninsured patients. Under the program, hospitals receive discounts that typically range from 20 to 50 percent off the regular drug price. Congress hoped these discounts would help hospitals provide patients with more affordable prescription medications. However, as Chairman of the Senate Judiciary Committee Senator Charles Grassley warns, “hospitals can elect to sell all of their 340B drugs to only fully insured patients while not passing any of the deeply discounted prices to the most vulnerable, the uninsured.”

Good intentions have unintended consequences.

The 340B program doesn’t explicitly require hospitals and pharmacies to pass the savings on reduced priced drugs to poor and uninsured patients. Because of lax oversight, many hospitals and pharmacies are instead choosing to pocket the discounts they achieve by purchasing drugs at below market prices and then padding their bottom line by selling these same drugs to insured patients at the full price.

A Department of Health and Human Services report revealed how common it is for hospitals and their affiliated contract pharmacies to blatantly disregard the 340B program’s original intent. The HHS Inspector General noted that nearly 30 percent of the 340B-eligible hospitals and pharmacies fail to pass on the 340B discounts they receive – even to uninsured patients.

To make a bad situation even worse, abuse of the 340B program hits cancer patients particularly hard. The North Carolina News & Observer reported, “large hospitals [with access to 340B discounts] are dramatically inflating prices on chemotherapy drugs…Hospitals routinely mark up prices on cancer drugs two to 10 times or more over cost. In some cases, the mark up is far higher.”

Worse still, because of the way the 340B program is being implemented, large hospitals are literally putting community oncologists out of business. They do this by taking advantage of lower chemotherapy drug prices with their 340B discount but then charging full or inflated prices to patients and insurers, plus tacking on additional fees (like facility fees). In sum, cancer treatment is very profitable for hospitals with 340B discounts.

As an oncologist, I have seen this reality play out all too often in communities across the United States. This disturbing trend is most unfortunate because community oncology centers typically provide chemotherapy to the patient at a lower cost and have a better safety record than hospital-owned infusion centers.

When 340B was introduced, only select hospitals with abnormally large numbers of uninsured patients were eligible. But due to poorly defined regulatory standards, one out of every three hospitals is now participating in the program. The Berkeley Research Group projects that 340B will be a $16 billion program by 2019 – more than double its 2013 size.  

This explosive growth is unsustainable – and could eventually break the program. Lawmakers must reform 340B to make certain that hospitals actually pass along the discounts to needy patients. This change will ensure that 340B fulfills its original mission and maintains public support. 

Warren Fong, MD is a hematologist in Newport Beach, California and is the President of the Medical Oncology Association of Southern California (MOASC) which represents hundreds of oncologists from Bakersfield to San Diego.