Christina Smith: To reduce Washington health care costs, add transparency to 340B

By Christina Smith

As Washingtonians face rising health care costs, lawmakers in Olympia are advancing legislation – Senate Bill 5981 – that would further increase spending and deepen the taxpayer burden through a little-known drug discount program.

The 340B Drug Pricing Program was designed to help safety-net hospitals provide medications to underinsured and uninsured patients. However, in recent years, the program has grown out of control – annual purchases through the program reached $81.4 billion in 2024. Moreover, large, tax-exempt hospitals in Washington and across the country have figured out how to game the system, driving up costs for patients, taxpayers, and state Medicaid budgets.

One study found that 340B participation increased overall Medicaid spending nearly $400 per enrollee between 2014 and 2021. As Medicaid is jointly funded by state and federal governments, these higher costs directly strain Washington’s already overstretched budget.

More troubling still, the Congressional Budget Office found that the 340B program incentivizes behaviors that lead to higher federal spending – and it doesn’t reduce costs for most Washington patients. 340B hospitals routinely charge prices three times higher than non-340B hospitals.

Meanwhile, taxpayers, employers, and the state are losing out on discounts that could help offset rising costs. Employers absorb these inflated hospital costs, which ultimately show up as higher insurance premiums for Washington workers and families. According to data from IQVIA, a health services research consultancy, Washington state employers are losing out on $218 million a year in discounts due to a lack of transparency and accountability in the program.

Higher insurance premiums and taxpayer costs are only one part of the problem. Despite the stated mission of the program, Washington hospitals fail to provide discounted care to patients in need – hospitals in the state provide charity care at a rate of only 1.5% of their operating budgets, below the national average of 2.15%. At the same time, hospital executives are raking in million-dollar-plus annual salaries: Five large 340B hospital CEOs in Washington had salaries greater than $1.5 million in 2022. While there’s nothing wrong with successful business operations making money, hospitals should prioritize their own funds for patient aid instead of pocketing 340B funds to prop up profits.

As 340B revenue flows to large hospital systems without accountability, those systems grow artificially larger and crowd out community providers, from Tacoma to Spokane.

Hospitals also use this money to expand and consolidate, often to the detriment of needy patients. Expansion and consolidation can and often does make the most sense for hospitals and their patients. But government-spurred concentration through programs like 340B is bound to result in unintended consequences.

New research shows that large hospitals place their affiliated clinics and pharmacies they contract with in healthier, wealthier neighborhoods, rather than communities in need. Lawmakers should ask themselves: should 340B child sites be in Bellevue, or in Yakima? As this artificial government-backed consolidation accelerates, community-based providers are struggling, and many are forced to close their doors.

The solution now under consideration in Olympia would only make matters worse. The proposed legislation would weaken already minimal oversight, further obscuring how hospitals and middlemen use 340B profits. It would also entrench higher health care costs that Washington families are already struggling to shoulder.

Washington can, and should, protect access to care and denounce wasteful spending at the same time. But 340B expansion does the opposite – it raises costs for patients, taxpayers, and the state without supporting vulnerable patients.

Washington lawmakers should reaffirm their commitment to vulnerable patients, not wealthy hospital systems, and reject SB 5981. Protecting patients does not require unchecked spending or limitless hospital expansion. At a moment when the state faces yet another multibillion-dollar budget shortfall, lawmakers should not abandon transparency and accountability in favor of wasteful use of taxpayer dollars.

Christina Smith is the director of the Taxpayers Protection Alliance’s Consumer Center. She lives in Washington, D.C.