Panel: Drug discount program driving up costs

Michigan hospitals that benefit from a federal program meant to encourage charity care provide less charity care than hospitals that don’t. This was one of a number of surprising facts discussed at a recent forum on the effects of prescription drug policy.

The federal 340B program gives hospitals deep discounts on drugs, panelists noted at a March 18 Issues & Ideas forum in Lansing held by the Mackinac Center for Public Policy. That subsidy ends up raising spending for insurers and employers, which raises health care costs and premiums.

Hospitals that get such deep discounts face incentives to prescribe more expensive drugs, but insurers and employers are more likely to pay the full cost.

Three panelists at the Mackinac Center forum discussed ways to make drug policies work for patients. They also discussed how programs meant to help patients might be raising costs and blocking transparency. A key question, they asked, was how can the government make prescription drugs affordable without picking winners and losers in health care.

The 340B program is supposed to make health care more affordable, but it doesn’t, said Lisa Grabert, a visiting health policy professor at Marquette University who researches post-hospitalization care within Medicare.

Grabert analyzed the 340B program using 2023 data. In Michigan, hospitals that use the 340B program made about 49% more revenue than hospitals that do not, she said.

But those 340B hospitals aren’t giving that revenue back to customers. Instead, they’re investing 113% more into stocks and bonds compared to non-340B hospitals, Grabert noted.

Grabert found that Michigan 340B hospitals provide 34% less charity care than other hospitals.

About 90% of health care facilities that use the 340B program also use the Prime Vendor Program to support the 340B program, according to a 2025 report from the Congressional Budget Office.

Spending on the prime vendor program increased from $6.6 billion in 2010 to $43.9 billion in 2021, according to the report.

The 340B program is one driving up health care costs that eat away at monthly paychecks, David Worthams, the director of employment policy at the Michigan Manufacturers Association, told the audience.

His group represents about 1,800 manufacturers.

The cost of 340B to Michigan employers and workers is about $272 million annually, Worthams said. This cost could drive companies out of Michigan.

“I don’t know how they stay in Michigan if we continue to add regulations upon them and continue to add costs upon them and we artificially increase their insurance premiums by expanding things like 340B,” Worthams said.