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Jean Jethro Alexandre may have done a tremendous service for taxpayers and low-income Americans without health insurance.
Alexandre defrauded Medicare, Medicaid, and private health insurance companies for at least $58 million. He worked with nurse practitioners to write phony prescriptions and then claimed they were eligible for a rebate under Section 340B of the Public Health Service Act.
Created in 1992, it allows qualified entries — such as Disproportionate Share Hospitals (DSH) that provide a disproportionate amount of care to low-income and uninsured patients — to purchase pharmaceuticals at a discount while still being reimbursed by government programs and private insurances as if they had paid the full rate. Congress created the program soqualified entities could use the savings to provide more help to low-income and uninsured Americans who do not qualify for Medicare or Medicaid.
Alexandre's mistake was using fake prescriptions to profit. If he had gotten a job as a hospital administrator, he could have legally profited from legitimate prescriptions that qualified for the government’s discounts. This is because the law does not require hospitals to use their savings to provide care to the uninsured.
It’s not surprising an analysis published in the New England Journal of Medicine found no evidence that hospitals invest their savings into safety net care. The New England Journal of Medicine analysis is just one of several studies showing the law is not working as intended. An Agency for Healthcare Research and Quality (AHRQ)-funded study found that, "financial gains for [340B] hospitals have not been associated with clear evidence of expanded care or lower mortality among low-income patients."
Rather than helping the uninsured, the law actually increases health care prices by incentivizing hospital concentration. This is because the law provides that any hospital system that owns one or more eligible hospitals can seek reimbursement for treatments administered at any facility owned by the hospital. This creates an incentive for larger hospitals to purchase smaller hospitals, community health care centers, and private practices in order to game the system to maximize their profits.
The result is patients have fewer community-based health care options. Instead, patients are pushed to seek care at more expensive facilities. This is one reason why the percentage of physicians who are part of a large hospital network grew from less than 30% in 2012 to approximately 47% in 2024. The fact government rebates are available at any facility that shares ownership with a qualified facility may also explain why research shows that just 38% of DSH hospitals, 29% of DSH child sites, and 26% of Section 340B contract pharmacies are located in medically underserved areas.
Further evidence the system is not working as intended is that between 2011 and 2019, the percentage of 340B contract pharmacies located in the lowest-income neighborhoods declined by 5.6%. In contrast, the share of 340B pharmacies located in the highest income neighborhoods increased by 5%.
Some members of Congress have expressed interest in fixing the situation, and the Jean Jethro Alexandre case has increased that number. Unfortunately, some may be focused on preventing future individual fraud cases instead of addressing the systemic legal graft encouraged by the program. For example, Virginia Rep. Morgan Griffith, a Republican who serves on the House Energy and Health Subcommittee, said the Alexandre case showed the need for Congress to continue "cracking down on harmful schemes like this one."
Fortunately, Congress can stop both legal and illegal abuses simply by requiring hospitals use their savings to provide care for low-income and uninsured Americans. Congress may also wish to require that only facilities that are designated as qualified entities may participate in the program, regardless of whether they are part of a larger hospital system that also includes one or more qualified entities.
As outrageous as the Alexandre fraud case is, the amount it costs taxpayers is a drop in the bucket compared to the legal waste committed by large hospitals' manipulation of the program. Thankfully, fixing Section 340B only requires a few simple changes.
The key is for Congress to remember the real problem comes not from people like Alexandre breaking the law, but from the law itself.
Charles Sauer is a seasoned economic policy expert, author, and founder of the Market Institute. Sauer authored the book, "Profit Motive: What Drives the Things We Do" and is a frequent voice appearing in outlets like the Washington Examiner, Forbes, Investor's Business Daily, and many more. Charles has also been named to Washingtonian's list of the "Most Influential People Shaping Policy" for four years.
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