TL;DR? Here’s a one-page version of this post. You can also see the code/methods on GitHub.
Programming note: This piece is co-published with Progress & Poverty, a newsletter run by the Center for Land Economics. The Center for Land Economics creates tools and research to promote equitable assessments and sustainable development.
A federal program designed to subsidize safety-net healthcare is quietly shifting tax burden onto the very communities it is meant to serve. The 340B Drug Pricing Program has become a major engine for hospital consolidation, incentivizing nonprofit systems to acquire private practices and hospitals to capture their drug revenue. Because these acquired properties typically fall off the tax rolls upon conversion to nonprofit status, the resulting revenue shortfall is redistributed as a silent surcharge on local taxpayers.
For those unfamiliar, the 340B Program lets qualified nonprofit hospitals purchase drugs from manufacturers at a steep discount; the hospital then charges patients (or their insurance) full price, pocketing the difference. This buy-low-sell-high setup is incredibly lucrative for hospitals and has caused a gold rush to join the program by any means necessary. As a result, 340B has expanded well beyond its original mandate and is now creating unintended consequences throughout the wider economy.
One of those consequences is increased property taxes. The basic causal chain goes like this:
Step 1: The 340B Program incentivizes nonprofit health systems to acquire or roll up for-profit hospitals, doctors’ offices, and oncology practices in order to access their patient bases.
Step 2: Once acquired, the physical property of the acquired for-profit entity becomes tax-exempt, significantly reducing or eliminating its property bill.
Step 3: In many jurisdictions, other people’s property taxes automatically increase to fill the gap left by the formerly-tax-paying property.
This isn’t happening on a massive scale, but it’s a big enough deal to significantly impact the communities where it does happen. Because property taxes are the largest source of revenue for local governments - and hospitals are often among the largest and most valuable commercial properties - the fiscal impact of exempting them can be huge. Further, it’s a great example of a surprising second-order effect – one that almost certainly wasn’t intended when 340B was created.
So, let’s walk through each link in the causal chain above, using a case study to demonstrate the on-the-ground impact.
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