Ringed by public housing projects, the Richmond community consisted of little more than a strapped emergency room and a psychiatric ward. It does not have a kidney or lung specialist or a maternity ward. Its magnetic resonance imaging machine often breaks down and was out of service for seven weeks this summer, said two medical staff at the hospital, who asked not to be named because they still work there. Standard equipment like an otoscope, a device used to inspect the ear canal, is often hard to come by.

Yet the hollow hospital — owned by Bon Secours Mercy Health, one of the nation’s largest nonprofit health care chains — has the highest profit margin of any hospital in Virginia, earning $100 million a year, according to hospital financial data.

This is from Katie Thomas and Jessica Silver-Greenberg, “How a Hospital Chain Exploited a Poor Neighborhood for Huge Profits,” New York Times, September 24, 2022.

What is the key to Bon Secours’ success? The US government’s 340B program. What a scam this program has been known for some time. Two journalists explained:

When Bon Secours bought Richmond Community, the hospital primarily served poor patients who were either uninsured or covered through Medicaid, which reimbursed hospitals at lower rates than private insurance. But Bon Secours turned the hospital’s poverty into an asset.

The agency seized on a federal program created in the 1990s to provide financial incentives to nonprofit hospitals and clinics that serve low-income communities. The program, called Section 340B after the federal law that authorized it, allows hospitals to buy drugs from manufacturers at a discount — about half the average sales price. Hospitals are then allowed to charge patients’ insurers much higher prices for the same drugs.

The theory behind the law was that nonprofit hospitals would invest the savings in their communities. But the 340B program came with a few rules. Hospitals did not have to disclose how much money they made from the sale of discounted drugs. And they weren’t required to use the revenue to help the underserved patients who qualified for the program in the first place.

It’s arbitration, but not in a good way, backed by the federal government.

Author’s Note:

Thanks to 340B, Richmond Community Hospital can buy a vial of the cancer drug Keytruder for $3,444, estimates Sarah Tabatabai, a former researcher at Memorial Sloan Kettering Cancer Center.

But the hospital charges private insurer Blue Cross Blue Shield more than seven times the price — $25,425, according to a price list that hospitals must disclose. That’s about a $22,000 profit on a single vial. Adults require two vials per treatment course.

Read the whole thing.

HT2 Health economist John C. Goodman, who makes the point more succinctly.

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