Duke University Hospital pockets $69.7 million peddling discounted drugs

by Kurt Schulzke

Wondering why your private insurance rates and taxes are so high? It’s not all Obamacare. Duke University Hospital may be using your insurance plan and tax dollars to subsidize its budget. Supposedly a “non-profit” corporation, Duke Hospital has mastered the art of buying drugs low and selling them high, thanks in part to what U.S. Sen. Charles Grassley has called “inadequate oversight” by the Health Resources and Services Administration (HRSA). Bet you had never heard of HRSA. Neither, apparently, has Duke. The Charlotte Observer reports:

Hundreds of U.S. hospitals, including more than 40 in North Carolina, obtain deep discounts on outpatient drugs under a rapidly growing federal program called 340B. The plan requires drug manufacturers to cut prices to hospitals that treat large numbers of financially needy patients.

But U.S. Sen. Chuck Grassley, R-Iowa, says information he obtained from Duke University Hospital, Carolinas Medical Center and UNC Hospitals raise questions about whether the program is functioning as intended.

Last year, Duke University Hospital purchased $65.8 million in drugs through the discount program, which saved $48.3 million. It sold the drugs to patients for $135.5 million, for a profit of $69.7 million. The profit would have been $21.4 million if Duke had not participated.

At Duke, about 67 percent of patients who received those discount drugs were covered by commercial insurance companies, which often pay hospitals many times over cost for medications. Only 5 percent of the Duke patients were uninsured.

In his March 27, 2013 letter to Mary K. Wakefield, HRSA Administrator, Sen. Grassley explains the purpose and context of the 340B program:

The 340B program, as established in the Public Health Service Act (PHSA), is a voluntary program that ensures that certain providers within our nation’s health care safety net (covered entities) have access to outpatient drugs at or below statutorily defined ceiling prices. The original intent of the program was to extend the Medicaid drug discount to the most vulnerable of patients at Public Health Service Clinics, those who are mostly, “medically uninsured, on marginal incomes, and have no other source to turn to for preventive and primary care services.”

In its letter responding to Sen. Grassley, Duke does not deny Grassley’s core allegations, but seeks to rationalize its use of the $135.5 milllion in 340B “revenues”:

While it is not relevant to speak in terms of “profits” at a nonprofit institution, it is certainly the case that the revenues generated through the 340b program are important to supporting our nonprofit patient care mission, including our ability to provide a substantial amount of charity care and community benefit for low income and uninsured populations. Available revenue is reinvested into facilities, technology upgrades and service expansion that benefit all patients, including those who are financially disadvantaged.

“Not relevant to speak in terms of profit”? Seriously? Clearing $69.7 million on $135.5 million in drug sales translates to a whopping 51.4 percent margin. Who does that, except maybe Mexican drug cartels? Meanwhile, Kevin Sowers, president of Duke University Hospital (Durham, N.C.) is reportedly paid $658,592 per year. While so-called “non-profits” don’t have shareholders, they do have stakeholders, a chosen few of whom are not at all shy about scooping up whatever “non-profit” revenue comes their way.

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