340B Covered Entities’ Revenue Witnessed Huge Executive Compensation Increases, Alarming Charity Care Decreases

By: Marcus J. Hopkins, ADAP Blog Guest Contributor, and Founder & Executive Director of the Appalachian Learning Initiative (APPLI)

Research conducted by ADAP Advocacy, as part of its ongoing 340B Project, and its newly minted Ryan White Grantee 340B Patient Advisory Committee found executive compensation increased significantly at 340B Covered Entities after they became eligible for 340B drug rebates as a source of revenue. In the same period, hospitals receiving 340B rebates almost uniformly saw nearly universal decreases in the percentage of charity care they provided as a percentage of revenues.

Read the ADAP Advocacy press release, here.

Photo Source: CANN

ADAP Advocacy examined total annual revenues for select Covered Entities participating in the 340B Drug Pricing Program—including executive compensation (only Chief Executive Officers, or CEOs)—charity care totals, and charity care as a percentage of annual revenues. The analysis identified trends across 340B Covered Entities, breaking them into two groups: hospitals and non-hospital grantees. It compares the year before each organization was deemed 340B eligible, one year after, five years after, ten years after, and the most recent year on file.

Across the non-hospital grantees, executive compensation increased at an average rate of 391.3%. When excluding outliers, that average was 320.2%. Across the hospitals, CEO compensation increased at an average rate of 224.9%, including outliers, and 186.8% when accounting for outliers.

Photo Source: Vistage.com

Of the hospitals examined, just three hospitals—Ascension’s St. Francis, Bon Secours’ St. Francis Xavier Hospital, and Wellstar’s Piedmont Athens Regional Medical Center—increased the charity care they provided as a percentage of overall revenues by 114.9%, 86.7%, and 13.2%, respectively. An additional two hospitals provided no charity care information. Overall, charity care as a percentage of revenues decreased across all hospitals at an average rate of 29.7%. When accounting for outliers, the average decrease was 36%.

These decreases in charity care as a percentage of total revenue come at a time when there are mixed reports about the number of Americans and households with medical debt in the United States. Different agencies and outlets report vastly different perspectives and analyses of medical debt, highlighting the need for more clarity and transparency about how medical debt is calculated and counted.

According to the Biden Administration, the number of Americans with medical debt on their credit reports fell by 8.2 million from the first quarter of 2020 to the first quarter of 2022. They attribute this decrease to streamlining by the Department of Veterans Affairs (VA) to improve access to medical debt relief for veterans with lower incomes, the purchasing and forgiveness of medical deb from hospitals and other sources using funds from the American Recovery Plan (ARP) by individual municipalities and counties, and the development of a new credit score that excludes medical debt.

Photo Source: National Foundation for Credit Counseling

Conversely, a report released by the Consumer Financial Protection Bureau in 2022 found that there was roughly $88 billion in medical debt on consumer credit reports. Since that report, credit agencies have voluntarily removed debts of less than $500, debts less than a year old, or those that have been marked as ‘Paid’ (Goldberg, 2023). Additionally, Kaiser Family Foundation (KFF) found that one out of every ten adults has medical debt and that the amount owed is at least $195 billion. 

According to Goldberg’s article in Politico, the real issue is that total medical debt is impossible to quantify in the United States “…because it hits people in incalculable ways.” Medical debt doesn’t always take on the form of debt sent to collections that will be reported on credit reports:

• Patients may be actively paying on debts owed, meaning that the only people aware of the medical debt are the holder and the patient.
• Patients may have paid medical debts using credit cards or personal loans, which again, so long as the patient remains current on their payments, would not be reflected on credit reports.
• Patients may have borrowed from family or friends and are repaying them.

These represent just a few of the potential scenarios that make the true total of medical debt impossible to quantify.

What is clear when looking at maps of households with medical debt released by the Urban Institute is that the communities where the percentage of households with medical debt in collection are largely located in the American South, including almost every county in West Virginia and South Carolina, as well as a plurality of counties in Oklahoma, North Carolina, and Texas. It is therefore important to evaluate which hospitals serving those communities are living up to their obligations of using 340B funds to improve patient care and access to care and treatment.

Editor’s Note: At the request of ADAP Advocacy’s CEO, Brandon M. Macsata, to demonstrate transparency, we’re sharing some information about compensation paid to his firm, Purple Strategy Group, Inc. (PSG). PSG is paid a monthly management fee, which covers the work Brandon does on administrative, accounting, governance, marketing, and programs. The monthly fee is $8,000 per month, which has remained at that level since 2013 without an increase. Based on budget and net revenue year-end numbers, Brandon is also eligible to receive a performance bonus up to $6,500. Additionally, Brandon gives back to the organization annually, with his annual financial contributions ranging between $2,500 and $15,000+. No fringe benefits are paid, since Brandon is a 1099 contractor and not an employee. He is eligible to receive additional compensation for special projects that fall outside the scope of work, although most years there are no such projects.

Disclaimer: Guest blogs do not necessarily reflect the views of the ADAP Advocacy Association, but rather they provide a neutral platform whereby the author serves to promote open, honest discussion about public health-related issues and updates.