On top of an expected increase in uninsured patients, proposed cuts to a drug discount program would further threaten their bottom line, local hospital officials say.

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"The change that was proposed ... I think was somewhere between $3 million and $4 million (impact) on St. Luke's," said John Strange, CEO of St. Luke's hospital.

At issue is the 340B drug discount program, created by Congress as part of the Veterans Health Care Act of 1992 to give hospitals that serve low-income populations a price break.

St. Luke's and Essentia Health-St. Mary's Medical Center both are beneficiaries of the program, as are a number of smaller hospitals in the Northland.

"The thought process is if you're providing this care to folks who aren't paying, or you get paid very badly, the offset is you get your drugs cheaper," Strange said. "It's giving us a lower price because we treat a larger number of people on Medicaid or uninsured."

But critics charge the program has outstripped its original intent and is being taken advantage of by hospitals serving increasingly affluent populations.

A study published in October 2014 in the journal Health Affairs noted that the number of hospitals and other providers enrolled in the program was roughly double in 2011 compared with 2001. It suggested the program doesn't necessarily benefit low-income patients.

"340B hospitals are not required to pass along their discounts to patients or insurers or to demonstrate their investments in outpatient programs for the poor," wrote the authors, led by Rena M. Conti of the University of Chicago. "Consequently, these providers can generate 340B profits by pocketing the difference between the discounted price that they paid for the drugs and the higher reimbursement paid by insurers and patients."

The issue reached a Senate hearing earlier this month. An article in Regulatory Focus, a publication of the Regulatory Affairs Professionals Society, portrayed it as Republicans and the pharmaceutical industry on the attack and Democrats siding with hospitals in defending the program.

The American Hospital Association in November filed a lawsuit seeking to block cuts in 340B that were sought by the U.S. Centers for Medicare and Medicaid Services.

Hospital representatives say the program enables them to provide free or discounted care to low-income patients at no cost to taxpayers, programs that could already be strained by an increase in uninsured and underinsured patients.

"As the program continues to be whittled away and as Big Pharma continues to aggressively work to minimize the program in an effort to repeal it entirely, it creates hardship on the provider side for the level of uninsured and underinsured that we have who qualify for the program," said Mike Mahoney, public policy leader for Essentia Health.

Even with 340B, the fastest-growing expense for hospitals is drug costs, said Kevin Boren, market finance leader for Essentia's East Region.

Sen. Charles Grassley, R-Iowa, introduced a bill this month that would require hospitals to report their costs for drugs purchased through 340B along with the revenues they receive from those same drugs.

But the reporting requirements under the program already are onerous, Strange said.

"The paperwork and regulations in the 340B program are amazing," he said. "And that's part of the cost structure that gets built in. It's no free lunch."