You’ve probably heard the expression, “all hat, no cattle.” It describes someone who wears trappings of a cowboy but has never stepped foot on a ranch.
Well, the phrase also applies to some urban hospitals.
A Health Affairs study found that the number of geographically urban hospitals benefiting from a federal program intended to support those in rural communities under Medicare grew from only three in 2017 to 425 in 2023. Members of Congress have pointed to hospitals in places such as Manhattan, Boston, and San Francisco taking advantage of this peculiar arrangement.
Why would a large urban hospital want to be considered rural?
One reason is the hugely lucrative 340B Drug Pricing Program. Qualifying hospitals can acquire drugs at deeply discounted prices from the manufacturers — and receive reimbursement from health plans at negotiated commercial rates, pocketing the difference. Federal law generally does not require these discounts to be passed directly to patients who receive the medicines.
As a result, many financially vulnerable patients do not benefit from a program intended to help them, while the cost of the discounts pocketed by these hospitals materialize in higher drug and healthcare prices for everyone else in Medicare. Meanwhile, hospital administrators that manipulate this program often secure lucrative cash cows (pun intended) to spend on other things, including themselves, at their own discretion.
Congress created 340B to help providers who serve Americans in need. Ordinarily, for a hospital to qualify, more than 11.75 percent of its patients must be low-income, vulnerable patients. However, the program allows for so-called Rural Referral Centers to qualify at just 8 percent, accounting for lower populations in rural areas. But Medicare rules also allow a physically urban hospital to obtain Rural Referral Center status.
This opens a much easier path into the 340B program. For a giant urban hospital system with enormous outpatient, oncology, infusion, specialty-drug volume, and administrative staff, this can be extremely valuable.
Hospitals say they use savings for uncompensated care and other services. Some certainly do. But in a program with $100 billion of discounted drug purchases, “trust us” is not an adequate accountability system.
What did the hospital pay for the medicine? What did Medicare or the insurance company pay? What did the patient pay? Did the prescription legitimately qualify for 340B? Was another government discount claimed on the same drug? And where did the resulting money go?
President Donald J. Trump is beginning to ask these questions.
His administration’s 340B Rebate Model Pilot would change the mechanics for a limited group of drugs. Instead of simply providing the discounted 340B price upfront, participating manufacturers would provide the benefit through a rebate after hospitals submit claims and the transaction is validated.
Hospital groups object that rebates could create cash-flow problems and administrative burdens, especially for smaller providers. These concerns deserve attention. The administration should require timely rebates and make the process as simple as possible for legitimate safety net institutions.
But inconvenience cannot be an excuse to avoid accountability.
The Trump administration is also attacking the problem from another direction.
The way Medicare reimburses hospitals for 340B drugs can also result in higher out-of-pocket costs for seniors. In fact, the Centers for Medicare & Medicaid Services has found examples in which a senior’s share of a bill was higher than what the hospital paid for the prescribed medication under the program.
CMS is proposing to bring Medicare drug payments in line with hospitals’ real costs for the drugs. Legitimately qualifying hospitals will still be able to earn margins when commercial plans reimburse 340B acquired drugs. But the proposal would sharply reduce the ability to use Medicare patients as a source of outsized profit. CMS estimates its proposal would reduce beneficiary payments for 340B drugs by about $1.15 billion in 2027.
Congress is noticing the rural classification problem, too.
Reps. Dave Taylor of Ohio and Carol Miller of West Virginia introduced the Defend Rural Health Act to restrict the ability of urban hospitals to collect advantages associated with both urban and rural status.
This is particularly important at a time when President Trump and Republicans have made a historic $50 billion commitment to transforming healthcare in genuinely rural America. We should be strengthening rural hospitals serving communities that may be hours from specialty care — not allowing massive metropolitan systems reap advantages designed for rural providers.
Even longtime Democratic defenders of 340B increasingly acknowledge that the program needs reform. Sen. Tammy Baldwin of Wisconsin recently said the program needs “real accountability and transparency.” Democratic Reps. Jake Auchincloss and Scott Peters have joined a separate bipartisan effort, the SECURE 340B Act, which Peters says would “close the loopholes” that have allowed 340B to drift from its mission.
There is a larger principle here.
One of the main reasons why American healthcare costs so much and works so poorly is lack of transparency and accountability. Hospitals, insurance companies, and other middlemen weaponize the system’s legal and administrative complexity to maximize their profits. No matter where excess costs initially land — patients, health plans, employers, or the government — they ultimately come out of our pockets.
The 340B controversy is a perfect example. All the players in the healthcare system know what they are paying and what discounts they are receiving for drugs and services. The patients don’t.
This is exactly the kind of opacity President Trump is trying to end. His Great Healthcare Plan promises to hold big insurance companies accountable. The same standard should apply to big hospital systems and every other powerful healthcare institution. No company should be able to use complexity, hidden prices, special classifications, or government rules to make money in ways patients and taxpayers cannot see.
Genuine rural hospitals deserve support. Hospitals that truly serve vulnerable Americans deserve support. But a hospital surrounded by skyscrapers should not get special treatment simply because it can pretend to be rural on a federal form.
Congress should close this loophole. The Trump administration should keep forcing greater transparency into 340B. And every hospital receiving special federal benefits should have to show what it paid, what it collected, and how patients benefited.
If the government is going to keep letting big urban hospitals play cowboy, they at least need to show us how much money they are keeping under their hats.
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