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How Washington makes it worse


Many of the problems in our health sector result from misguided, even if well-intended, laws that lead to mountains of rules and regulations that distort a functional health sector.  Washington forces doctors, hospitals, and others to follow its dictates rather than respond to the needs of the American people for quality, affordable care and coverage.  

Case in point: Senate Majority Leader Chuck Schumer is in intense negotiations with West Virginia Sen. Joe Manchin and Arizona Sen. Kyrsten Sinema to pass legislation that would impose an excise tax of up to 95% on many prescription medicines. The only way this tax can be avoided is if pharmaceutical companies submit to government-imposed price controls.

This is an outrageous, off-the-charts, punitive tax that will increase costs, reduce innovation, and stuff the piggy bank for spending on other welfare-state programs. The CBO and Joint Committee on Taxation (JCT) estimated in June 2020 that the policy would “save” the federal government $581 billion from 2021 through 2030, so it’s a big ticket item.  

The drug tax is part of the Build Back Better package that has gone down in flames, but this provision is rising from the ashes to help Democrats say they are doing something about prescription drug prices and raise a boatload of money.  

The bill, known as H.R. 3, lays out a strategy for price controls on the most widely-prescribed drugs. If companies don’t go along with the government price controls, they have an “option” to instead pay a tax that quickly escalates to 95%. 

The tax will fall on consumers either directly or indirectly in higher drug prices. 

The Center for a Free Economy sent a letter, signed by 80 free-market groups, to Senate leaders explaining the damage this would do.  But the bill offers easy, albeit wrong, talking points to say they are “doing something” about drug prices.  They are right:  It will mean seniors will pay higher prices for drugs or not get them at all, and investments in developing new medicines will be suffocated.

Be warned.

And eyes are on the U.S. Supreme Courtover a challenge to a Trump administration rule involving drug discounts.

The American Hospital Association is challenging a 2018 rule implemented by the Trump administration that attempts to cut the wings of a federal program that is out of control.  It’s called 340B, and it was created in 1992 to make sure that hospitals and clinics treating low income, often uninsured patients, get the best price on prescription drugs.  (Here’s a primer from the American Action Forum on its history and how it works.)

The program is being significantly abused and has become a piggy-bank for hospitals, cancer centers, clinics, and other providers.  Pharmaceutical companies must offer the discounts to participate in Medicare and Medicaid so they are over a barrel.  But it means more and higher costs are shifted on to other payers—once again leading to higher costs for consumers.

The ACA opened the floodgates to entities that could participate in 340B, and the number of facilities rose by 1,100% between 2013 and 2020.  The Trump administration wanted to refocus the program on those most in need rather than allowing many of the most affluent hospitals to pad their balance sheets by reselling the deeply-discounted 340B drugs at retail prices.

And here’s the rub:  340B hospitals provide less charity care than non-340B hospitals, as Neal Masia, CEO of Health Capital Group found in “Measuring the 340B Drug Purchasing Program’s Impact on Charitable Care and Operating Profits for Covered Entities.” Dr. Masia examined the charitable care spending for more than 4,000 community hospitals, and he found that 340B hospitals provide little charity care. The profits generated by the discounts are not benefitting patients, and reform is desperately needed. 

A Supreme Court decision is expected this month. Jackson Hammond of the American Action Forum explains more in 340B gets its day in court

These are just two examples of how Washington’s efforts to solve problems wind up hitting consumers’ pocketbooks.


Grace-Marie Turner is Founder, President, and Trustee, Galen Institute.