I hit submit on a federal comment letter this week with about four hours to spare before the deadline (on-brand, sigh). CMS, the agency that runs Medicare, has proposed injecting rationality into a program that has long since lost its way, and they deserved an attaboy. They also got a set of rebuttals to the hospital lobby’s hysterics.
Hospitals have been living off the fat of this land for way too long, and enough is enough.
Below is the whole thing, as it went to CMS, because a good rant is wasted if the bureaucrats are the only ones who read it.
Dear Dr. Oz:
I am writing in strong support of your proposal to reimburse hospitals for drugs acquired through the 340B program at a price that more accurately reflects what those hospitals actually, you know, paid for them.
Finalize it as written, no matter what the whining, corrupt hospital lobby says.
Believe me, I’m familiar with the hospital lobby. I did health care policy in the Senate for almost 15 years, and then in the first Trump White House, before starting a company that helps employers build re-humanized health plans.
When prospective employer clients hand my team at AllBetter Health a few years of claims to audit before they sign with us, we find all kinds of shenanigans. But one of the most egregious is a hospital-owned infusion center billing a patient on a self-funded plan four or five times (or 100x!) what the drug cost the hospital to acquire. My benefits advisory firm was built specifically to fight back against the fleecing of American patients and the employers, unions and taxpayers who support their care.
What The 340B Fracas is All About
As you know, in 1992, Congress created what’s now called the 340B program to let a defined set of safety-net providers, community health centers, Ryan White HIV clinics, hemophilia treatment centers, and hospitals serving a disproportionate share of low-income and uninsured patients, buy outpatient drugs from manufacturers at steep, statutorily mandated discounts. The stated purpose, straight from the legislative history, was to let these providers “stretch scarce federal resources as far as possible, reaching more eligible patients.” Congress was picturing a rural HIV clinic in Alabama being able to buy more vials of AZT, or hire more nurses to serve its HIV-positive patients.
Then Congress moved on and never came back to tighten any of the vague definitions in the law, which have now been abused beyond all recognition. The statute doesn’t require a hospital to pass its 340B savings to the patient who generated them. It doesn’t cap how many contract pharmacies a single hospital can run the drugs through, or if those pharmacies have to be on the North American continent. It doesn’t require disclosure of what happens to the spread between the discounted price the hospital buys at (sometimes, pennies) and the billed price to all the hospital’s payers, including my employer clients and their workforce. It barely defines “covered entity” beyond a list of categories, and it says nothing at all about how CMS should ever go back and check whether the discount that the hospitals are getting still matches what the statute assumed in 1992.
Thirty-four years of legislative laziness on the details turned a program designed for community health and AIDS clinics into a million-headed monster of contract pharmacies, more than 34,000 of them, feeding an $81.4 billion-a-year business in which the top 100 health systems alone captured over $40 billion of the $53.7 billion moved in 2022. Congress wrote a vague blank check to corrupt, giant corporate hospital conglomerates, and now the same vagueness that let them build this monster is the vagueness their lawyers are using to try and stop CMS from fixing it.
What CMS Has Proposed, and Why
The law governing Medicare’s outpatient drug payments gives CMS two ways to set their rate.
Door #1: pay every hospital Average Sales Price (ASP) plus 6 percent “margin,” no exceptions, no separate treatment for any group.
Door #2: pay hospitals what a hospital acquisition cost survey says they actually paid for the drug, and Congress explicitly allowed that rate to vary by hospital group if the survey supports it.
Back in 2018, CMS tried to walk through Door #2 without doing the survey that Door #2 requires, cutting the 340B rate to ASP minus 22.5 percent and defending the number as though it were self-evidently justified. The Supreme Court unanimously slapped that down in American Hospital Association v. Becerra in 2022, in an opinion Justice Kavanaugh wrote for the whole Court. He drew the line at varying the rate without a survey, not at varying it at all.
This time, CMS ran the survey first, its own drug acquisition cost survey (ODACS), and built the ASP-33.4 percent rate directly from what hospitals told it they paid, now proposing that rate in its annual payment rule for outpatient services.
But Wait, Isn’t CMS Eliminating the Very Spread the Program Intended?
Supporters of the 340B program might argue that the whole design of 340B was for covered entities to buy the drug low, bill the normal rate, and keep the difference to fund more care for people who can’t pay. If that’s right, doesn’t paying hospitals close to acquisition cost undo the exact mechanism Congress built?
Not for Medicare.
Congress didn’t intend for Medicare rates to always be ASP+6, world-without-end. That’s the whole reason for Door #2 - to be able to adjust what the government reimburses hospitals for drugs based on what they actually pay for them - which might be more than ASP+6 (in which case Door #2 provides a mechanism to pay the hospitals more), or it might be less than ASP+6 (in which case Door #2 allows the government to remind hospitals that they’re pretending to be charities when the IRS comes knocking).
Also - Medicare patients have to pay their 20 percent coinsurance off the Medicare rate. If the hospital is getting a drug for pennies, their coinsurance ought to be 20 percent of pennies, not a fifth of a rapey ASP rate.
Won’t Hospitals Just Cost-Shift to My Employer Clients if Medicare Cuts Their Reimbursement under 340B?
Some will try. But let’s not pretend that hospitals are somehow, somewhere exercising pricing restraint in what they’re charging employers right now because of all that sweet, sweet 340B cash they’re raking in. No. They’re extracting exactly as much value out of their local communities as those markets will possibly bear without steering too many patients away from them.
An employer can self-fund, negotiate, or route its members around a hospital’s markup, which is exactly what I help them do at AllBetter Health. A Medicare patient getting chemo can’t. If the 340B cross-subsidy model is going to exploit someone’s cost-sharing without their consent, it shouldn’t be a fixed-income senior’s.
What’s more, the CMS proposal isn’t even a cut. Instead, CMS has cleverly redirected these overpayments for 340B drugs to other outpatient services. As a result, the tapeworm-like hospitals - eating up more and more independent outpatient practices and slapping their logo on the building, in order to raise prices and stifle competition - should do just fine.
“But, CMS Used Incomplete Cost Data to Come Up with Its Proposed Rate!”
The hospital lobby is whining that when CMS surveyed hospitals to find out what they actually paid for 340B drugs, they didn’t get enough data in response, and so their proposed rate is based on inaccurate, incomplete survey data.
Specifically, “CMS’s survey includes data from less than a quarter (23.1%) of 340B hospitals and less than a third (29.8%) of total hospitals.”
This is the exact same hospital lobby group that, just this January, joined seven other hospital trade groups in a letter telling CMS it was “wrong to tell hospitals and health systems that they ‘are to’ complete” this exact survey, because nothing in the statute makes a response mandatory. In other words, the AHA spent the winter encouraging its members to skip the survey.
They’re now spending the summer arguing that not enough of their members answered it. You know how you get the government to take your costs seriously? Give them your cost data when they ask nicely for it. If AHA wants all hospitals to do so, they’re welcome to reverse their messaging to members about next year’s survey.
“But You Didn’t Ask Us What We Paid for EVERY SINGLE drug!”
The hospital lobby is comically suggesting that CMS can’t set an average rate based on data it got from, you know, almost a third of AHA’s members because it didn’t calculate a separate, statistically valid acquisition cost for every individual drug.
Their proposal, I guess, is that CMS build an independently powered statistical estimate for every one of the thousands of individual National Drug Codes covered by 340B before it could ever correct the rate for any of them, using a response rate the same trade association just spent seven months arguing hospitals have no obligation to improve. No survey of a voluntary program has ever cleared that bar, and the hospitals raising the objection benefit the most from nothing ever changing.
“But We’ll Die - Die, I Say - If 340B Isn’t as Golden a Goose as It Has Been!”
Let’s not forget: a hospital’s real acquisition cost for a drug doesn’t change because of this proposal. CMS isn’t increasing costs for hospitals by one dollar. This proposal only changes the profit that the hospital makes on 340B drugs given to Medicare patients. Now, if hospitals were actually using that spread the way the law intended, and the way they’re obligated to use it, they could argue that they would serve fewer uninsured or underinsured patients.
But it would be almost impossible for hospitals to help fewer poor people tomorrow than they do today.
Mt. Sinai stopped taking Medicaid patients. Providence hired McKinsey to devise better ways to keep poor patients from finding out about their statutorily-required charity program. NYU Langone, NY Presbyterian, and many other systems have, in the last year or two, started turning away my clients - a group of Catholic nuns with no income, whose plan has no network. Rather than taking the plan, knowing that they might get paid less than overpriced network rates, they insist that these sisters pay cash upfront or they won’t schedule them for care. University of Pittsburgh Medical Center, University of West Virginia, Sutter Health are all doing the same to working class patients whose health plans don’t have a network, because they might be paid more than Medicare but not 3-6x Medicare that a network contract would provide.
The IRS requires almost nothing of these systems, continuing year after disgraceful year to exempt them from taxes.
Kaiser Health News reported in 2021 that “nonprofit” hospitals are sitting on more than a quarter trillion dollars of investment assets: stocks, hedge funds, private equity, venture funds and more. Of that amount, less than seven percent ($19 billion) of those investments are principally devoted to their nonprofit missions rather than simply raking in more revenue.
Hospitals captured more than 87 percent of the 340B program’s $53.7 billion total in 2022, rather than the clinics the program was built around. The AHA, the top lobbying group, is also the organization that sued to block federal hospital price transparency rules and lost at trial and on appeal, spent $29 million on federal lobbying in 2024 and another $7 million in the first quarter of 2025 alone.
So any hysterics about the reduction of the “safety net” ring demonstrably false.
But Let’s Say You’re Not Persuaded By These Arguments
Maybe you think that all these arguments fall short, and the CMS proposal is simply gutting the spirit and the letter of the 340B law.
Good.
As long as it’s legal (and the Supreme Court says it is), Congress deserves to have their red-headed stepchild gutted like a stuck pig. This well-intentioned program should never have been allowed to grow into what it is, a system where the sickest, most expensive patients in the country generate margin for the wealthiest hospitals in the country in the name of helping the poor.
And if CMS is using the authority Congress gave it to undermine a program Congress created because Congress itself is too lazy, craven or incompetent to reform it properly, then Congress had it coming.
Finalize It
I’ve written elsewhere that a hospital is a failure of health care, the place you end up after everything else didn’t work, and it shouldn’t be the most profitable real estate in town. A program built in 1992 to help a clinic treating AIDS patients in rural Alabama stretch a drug budget was never supposed to generate the kind of legal firepower on display in this docket.
Specifically, I’d urge CMS to:
Finalize the ASP-33.4 percent 340B payment rate as proposed, without delay or a second comment period.
Reject the “sample wasn’t large” objection from the same organizations that spent all year telling hospitals the survey was optional.
Reject the “no per-drug estimate” objection as an unmeetable standard offered in bad faith, not a genuine statistical concern.
Continue running the acquisition cost survey every year, so the sample size the industry complains about today only grows, and this objection has no future to hide behind.
Respectfully submitted,
Katy Talento, ND, ScM
CEO, AllBetter Health
Hopefully this gets some attention. Hopefully it highlights (some of) the stealing. Either way, I said my piece.
Now we’ll see if Dr. Oz can ignore the industry’s tantrum.
Maybe I am the only one, but I need a lesson on how these Federal programs assigning percentage payments (for drugs only?) are supposed to work and what loose rules are allowing hospitals to refuse to accept coverage. I also want to know how to keep small NH hospitals open for the folks living upcountry where population is sparse.
I love how you talk. I'd like to think I talk like that, however mine is not so pithy, but pithy enough to leave some friends telling me I've left them in the dust!