NY Hospitals Pocket Drug Savings, Study Finds

NEW YORK, NY— New York hospitals participating in the federal 340B Drug Pricing Program are under new scrutiny after research found they may be channeling drug savings into financial investments rather than patient care, even as state lawmakers move to expand protections for the program.

The findings come from Lisa Grabert, a health policy professor at Marquette University, who analyzed 2023 hospital cost reports and state financial data.

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The 340B program allows eligible nonprofit and safety-net hospitals to buy outpatient drugs at steep discounts and keep the difference between the discounted price and what insurers reimburse.

Grabert said hospitals appear to be prioritizing financial growth over direct patient benefits.

“In the state of New York that when hospitals participate in this program, they are really prioritizing investment of that revenue,” she said.

These investments look like Wall Street bonds and stocks aimed at generating additional revenue for hospital systems.

Her analysis found New York 340B hospitals invested about 42 percent more revenue into financial assets than non-340B hospitals.

The same hospitals reported no meaningful increase in charity care compared with peers. They also relied more heavily on contract labor, with 57 percent more contracted full-time employees on average.

The program, created in 1992, was designed to stretch federal dollars and expand care for low-income patients.

But Grabert’s study concluded that “NY 340B hospitals provided charity care that was no different, on average, compared to non-340B hospitals,” despite higher revenue flows.

The data also showed wide variation in hospital financial behavior. One comparison in the report found 340B hospitals averaged $191 million in investment income versus $95.4 million at non-340B hospitals.

Another found large systems netting roughly $932 million in revenue on average, more than double their non-340B counterparts.

Hospitals, however, do not publicly disclose how individual 340B revenues are allocated internally, a limitation Grabert said prevents full transparency.

“There is no way to follow the flow of dollars,” she said. “We don’t know how much revenue hospitals generate individually… and until we know that, it’s a little hard to kind of lock down exactly where the problems are and where to target reforms.”

Grabert argues the program’s lack of regulation on how hospitals can spend money, combined with the ability to keep transactions private, creates a dynamic where revenue flows are difficult to trace and incentives shift toward financial investment over direct patient care.

The findings arrive as New York lawmakers debate a bill that would expand protections for 340B providers.

The legislation, sponsored by State Sen. Gustavo Rivera, representing the Bronx, would prohibit drug manufacturers and pharmacy benefit managers from restricting hospital access to discounted drugs or imposing conditions that differ from non-340B entities.

“My bill will establish protections for healthcare providers participating in the 340B program to shield them from actions taken by drug manufacturers to reduce utilization of the program in New York,” Rivera wrote in a statement to Patch.

He described the program as “an essential lifeline of financial support for safety net providers.”

The bill has advanced through committee and was included in the Senate’s budget proposal, according to legislative records.

Grabert’s research suggests a gap between the program’s intent and its outcomes in New York.

While 340B was designed to support low-income patients, she said her findings instead point to financial consolidation within hospital systems.

“It sort of begs the question,” she said, “If this program isn’t meeting its intention for the money to go back to patient populations, should there be revisions, reforms put in place to make sure that the money is used in that way in the future.”