Progress Traps and the 340B Drug Pricing Program

June 29, 2014

Hospitals are not only marking up and selling 340B-discounted drugs, but also buying up clinics to take advantage of the discount – a clear "progress trap."

This week, Kaiser Health News reported a story by Kristian Foden-Vencil of Oregon Public Broadcasting, detailing a pitched battle which has broken out between hospitals and drug manufacturers regarding the 340B Drug Pricing Program

The program was designed to require drug makers to offer discounts to hospitals who, in turn, are supposed to dispense the discounted prescription drugs to low-income and needy patients. The 340B program certainly robs from the rich and gives to the poor, but that’s not the part anyone is complaining about. Drug makers simply want the discounts under the 340B program to actually benefit the poor, which they aren't.

Foden-Vencil writes: "Here's the rub. Sometimes, instead of passing on drug discounts to patients, hospitals sell the medicines at higher prices to their insured patients. The hospitals use the proceeds to fund clinics, staff, and other services that the hospitals say benefit everyone. The law allows them to do that, the hospitals say, because it's a way to stretch 'scarce federal resources' - a phrase that is in the law."

Hospitals are apparently not only marking up and selling the 340B-discounted drugs to insured patients, but actually buying up free-standing clinics, in order to take advantage of the 340B discount, which would not otherwise be available to a stand-alone clinic. The program is being used by hospitals as a method of capturing profits and diverting them to different objectives.

This is what historian and novelist Ronald Wright had in mind when he used the term "progress trap" in the 2004 book, "A Short History of Progress." A progress trap is the condition human societies experience when, in pursuing progress through human ingenuity, they inadvertently introduce problems they do not have the resources or political will to solve. In a progress trap, those in positions of authority are unwilling to make changes necessary for future survival. To do so, they would need to sacrifice their current status and political power at the top of a hierarchy. They may also be unable to raise public support and the necessary economic resources, even if they try.

When Wright’s book became the documentary film "Surviving Progress," backed by Martin Scorsese, the film cited a simple example:  When man first learned to use a spear to hunt, this was progress. When man learned he could ditch the spears, and instead heard the mammoth off cliffs, this too was progress. However, there was a problem. Man couldn’t figure out how to herd just the needed single mammoth over the cliff, the entire herd followed. Given a choice between acting responsibly, or taking the easy way out, it isn’t hard to guess which one our ancestors chose.

The same thing happens with any resource, from gold mines to oil fields, and with healthcare programs like 340B. Progress for the poor quickly became a way for hospitals to solve other problems, and they pounced on it. The Kaiser report quotes Stephanie Silverman, who is with the Alliance for Integrity and Reform of 340B, a lobbying group made up of drug companies and medical organizations, stating, "That's not what the program was designed for.It was not designed to provide other revenues to support the operations of hospitals."

According to Wright, any progress trap will lead to the exploitation and depletion of any resource, which in turn leads to eventual collapse. Simply substitute "Medicare" and "Medicaid" for mammoths, and the problems facing the program start to make more sense.