screenshot of New York Times article, How a Hospital Chain Used a Poor Neighborhood to Turn Huge Profits
The New York Times weekend front page story on Bon Secours Mercy Health System’s alleged misuse of the 340B program is creating a stir in the 340B community.

New York Times Front Page Story on 340B Program Causes Shockwaves

340B stakeholders are responding to a long investigative article in Saturday’s New York Times that accuses a Catholic health system of exploiting the 340B discount program at the expense of one of its inner-city hospitals to enrich its other hospitals located in wealthier, suburban neighborhoods.  The blockbuster piece, which appeared on the front page of Saturday’s paper as part of a series entitled Profits over Patients, has created significant consternation in the 340B provider community. 

Provider groups are very concerned that the article does not provide an accurate portrayal of how the 340B program is used and could undermine support for what they believe is a vital program.

The lengthy story, which was co-written by two of the Times investigative reporters, accuses the Bon Secours Mercy Health System of taking advantage of its access to the 340B program at one of its poorest hospitals located in a predominantly Black and low-income neighborhood in Richmond, Virginia to extend the reach of the program to wealthier hospitals and clinics.  It accuses the system of neglecting its inner-city hospital in Richmond, Virginia—Richmond Community Hospital—and investing its significant 340B savings in other hospitals and clinics in more affluent, whiter neighborhoods.

The article describes Richmond Community Hospital, founded in 1907 by Black doctors, as being hollowed-out and in significant disrepair.  Yet, the Times accuses the hospital, located in Richmond’s East End, of having one of the highest profit margins of any Virginia hospital, generating as much as $100 million per year.

According to the article, the “vast majority” of Richmond Community’s profits are derived from the 340B program, yet the site’s medical infrastructure over time has been stripped to bare bones, consisting of “little more than a strapped emergency room and a psychiatric ward,” with standard equipment such as a magnetic resonance imaging machine in disrepair, no I.C.U. and no kidney or lung specialists.

In fact, sources interviewed for the article blamed the recent death of patient rushed to the facility for emergency care on the site’s lack of basic equipment and staff.  Also, during the COVID-19 pandemic, the census tract that includes Richmond Community Hospital had an 81% higher COVID death rate compared with the city’s overall rate, the article said, quoting data from the Virginia Department of Health.

“The [340B] drug program was created with the intention that hospitals would reinvest the windfalls into their facilities, improving care for poor patients,” the Times article charged. “But Bon Secours, founded by Roman Catholic nuns more than a century ago, has been slashing services at Richmond Community while investing in the city’s wealthier, white neighborhoods, according to more than 20 former executives, doctors and nurses.”

The article quotes a former ER doctor at the Richmond facility that “Bon Secours was basically laundering money through this poor hospital to its wealthy outposts …It was all about profits.”

And those profits are significant, the article said, stating that Bon Secours’ 50-hospital chain that spans the U.S and Ireland raked in nearly $1 billion in profit in 2021, and had more than $9 billion in cash reserves, helped by at least $440 million in savings from federal, state and local tax breaks every year, based an analysis by the nonpartisan think tank, the Lown Institute.

Although the tax breaks given to nonprofit hospitals are supposed to be invested into communities, the article said, “An investigation by The New York Times found that many of the country’s largest nonprofit hospital systems have drifted far from their charitable roots. The hospitals operate like for-profit companies, fixating on revenue targets and expansions into affluent suburbs.”

For its part, Bon Secours told the Times it has spent nearly $10 million on improvements to Richmond Community Hospital since 2013, including opening a pharmacy and renovating the cafeteria, emergency department and other areas.  The system says it has invested almost $9 million in the surrounding neighborhood since 2018.  According to the article, Bon Secours did not disclose how much money it earned through 340B, but said the funds “help us address health disparities while providing community support and outreach.” It said it had provided nearly $18 million in free care to poor patients at Richmond Community Hospital since 2018.

Still, the article charges, “Starting in the mid-2000s, big hospital chains figured out how to supercharge the [340B] program. The basic idea: Build clinics in wealthier neighborhoods, where patients with generous private insurance could receive expensive drugs, but on paper make the clinics extensions of poor hospitals to take advantage of 340B.”

The Times says that Bon Secours has since 2013 opened nine satellite clinics in wealthier parts of Richmond, and although miles from Richmond Community, they are legally structured as subsidiaries of the poorer hospital, entitling them to buy drugs at 340B discounts.  For example. the article noted that Bon Secours is investing $108 million in one of its sites, St. Francis, to expand the I.C.U. and maternity ward.

Concern that 340B Program Painted in Broad Brush

The Times piece not only raises concerns about Bon Secours’s practices, but paints the 340B program as one rife with misuse. “The organization seized on a federal program created in the 1990s to give a financial boost to nonprofit hospitals and clinics that serve low-income communities. The program, called 340B after the section of the federal law that authorized it, allows hospitals to buy drugs from manufacturers at a discount — roughly half the average sales price. The hospitals are then allowed to charge patients’ insurers a much higher price for the same drugs, says the Times.

“The theory behind the law was that nonprofit hospitals would invest the savings in their communities. But the 340B program came with few rules. Hospitals did not have to disclose how much money they made from sales of the discounted drugs. And they were not required to use the revenues to help the underserved patients who qualified them for the program in the first place”, the Times adds.

The article quotes a long-time critic of the 340B program, Peter Bach, a former oncologist at a non-340B hospital Memorial Sloan Kettering Cancer Center.  Bach told the Times that hospital systems are “nakedly capitalizing on programs that are intended to help poor people.” Bach, along with academic Rena Conti, have published journal articles criticizing the practices of 340B hospitals.  Bach, who also frequently hammered the drug industry for high prices, was the long-time director of Memorial Sloan Kettering’s Center for Health Policy and Outcomes.  He left Sloan Kettering in June 2021 to become an executive at biotech startup Delfi Diagnostics.

340B Stakeholder Response

340B provider groups, were quick to defend the 340B program.

 “Particularly in an era of skyrocketing drug prices, the 340B program has been critical in helping hospitals expand access to comprehensive health services, including lifesaving prescription drugs,” said Colin Milligan, spokesman for the American Hospital Association. “As many in the hospital field struggle to maintain solvency, the 340B discounts increasingly help hospitals keep their doors open and continue to offer patients critical services, such as medication therapy management, diabetes education and counseling, and mobile treatment clinics for rural areas. The 340B program is essential to maintaining access to services for patients and vulnerable communities.”

The National Association of Community Health Centers (NACHC) fired off a letter to the Times yesterday which the organization shared with 340B Report.  “Bon Secours has chosen to put profits over patients, and the community suffered as a result. Despite the tragic circumstances of this case, it is essential to note that 340B has been instrumental in expanding access to life-saving care in low-income communities. Community Health Centers rely on 340B to provide critical drugs to patients who are typically low-income, uninsured, and members of racial and ethnic minorities,” said Rachel Gonzales-Hanson, NACHC’s interim president and CEO.

Beth Feldpush, senior vice president of policy and advocacy at hospital group America’s Essential Hospitals, also weighed in. “We can speak only for our members, who represent about 5 percent of all U.S. hospitals but provide more than 27 percent of charity care nationally and operate with margins less than half those of other hospitals. Given those financial challenges and the patients they serve, our hospitals depend on their 340B savings to meet their mission of caring for low-income people and marginalized communities.”

Maureen Testoni, president and CEO of hospital group 340B Health, criticized the story. “The New York Times story does not reflect the critical role 340B and 340B hospitals play in treating our nation’s most vulnerable patients – those living with low incomes and those who live in often underserved rural communities.  A wealth of published research demonstrates that 340B hospitals provide three-quarters of all hospital care for people with Medicaid and account for two-thirds of all uncompensated and unreimbursed care,” she said.

Testoni added, “Congress created 340B to support the health care safety net by requiring drug companies to sell outpatient drugs to hospitals, health centers, and clinics that meet strict requirements. The savings from those discounts – not taxpayer dollars – are used to serve more patients, especially those with low income, and offer more comprehensive services. Throughout its history, 340B has enjoyed strong, bipartisan support that continues today.”

“340B savings help hospitals provide vital services that serve their communities’ needs including trauma and burn care, emergency and inpatient mental health services, and HIV/AIDS care. 340B hospitals also use savings to offer medication management services to help patients follow their treatment regimens and improve their health and transportation and translation services that reduce inequities in access to care.”

“Finally, 340B is a lifeline for hospitals serving rural communities. At a time of record rural hospital closures, 340B savings help keep the doors open so that people living in rural communities aren’t forced to travel many miles to get the care they need, ”she said.

However, Nicole Longo, spokeswoman for drug industry trade group Pharmaceutical Research and Manufacturers of America, said the article highlights the 340B program’s lack of oversight. “The New York Times provided an informative and alarming look at how some hospitals are taking advantage of the 340B program,” Longo said. “It is far too easy for large, wealthy hospitals to manipulate the 340B program to their own advantage, harming patients in the process. We’ve long raised concerns with the lack of transparency and accountability in the program for these exact reasons.”

Representatives of Bon Secours were not available for comment.