Matt dives into a specific healthcare topic to help those in the industry, and those outside of it, better understand the market drivers causing today’s healthcare challenges.

I saw the numbers from ADAP Advocacy, and they slapped me in the face with their clarity.

Hospitals with the highest 340B reimbursement and the lowest charity care were paying their executives at the highest levels. These are nonprofit organizations paying executives tens of millions of dollars a year while claiming poverty when it comes to hospital finances.

The 340B Drug Pricing Program was designed to help safety-net hospitals serve vulnerable patients. Instead, it became a procurement vehicle for profit extraction.

Here's how it works.

A hospital buys a drug at the 340B discount—often 50% or more off retail. They bill the patient or insurer at full retail price. The margin goes directly to the hospital's finances. They choose what they do with it. This discount is provided by the evil pharmaceutical companies everyone complains about. Thats billions of dollars in discounts they hand over every year to benefit patients and nobody gives them the credit they rightfully deserve!

There's a statute about reinvesting in patient care, but no transparency or reporting requirement for how these funds are used. The program reached $66.3 billion in drug purchases in 2023, yet hospitals don't account for what specific expenses 340B revenue covers.

Richmond Community Hospital in Virginia generated more than $90 million in profits in 2021—among the highest profit margins of all Virginia hospitals. Senate investigations found hospitals like Bon Secours Mercy Health and Cleveland Clinic generated hundreds of millions in 340B revenue between 2018 and 2023 but do not pass discounts directly to patients.

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Affluent hospitals aren't gaining 340B status themselves. They're buying 340B entities and directing all their purchasing through those entities to capture the margin.

The geographic pattern tells you everything. In 2022, 94% of contracting pharmacies were located in a different ZIP code than their 340B hospital, and 46% were in regions where median income was at least 30% greater than the hospital's ZIP code.

Six 340B contract pharmacies operated in the nation's 10 wealthiest ZIP codes. Zero in the 10 poorest ZIP codes.

The safety net became revenue optimization.

Commercially insured patients subsidize this system twice.

First, hospitals over-bill commercially insured patients to compensate for lower reimbursements from Medicare, Medicaid, and indigent care. Second, those same patients fund the 340B discounts that generate hospital profit margins. Don’t believe me? If you have commercial insurance, just look at your Explanation Of Benefits on what the hospital billed for your services. $800 for Tylenol. $3,000 for the time with a nurse. It goes on and on. Better yet, if you can ask for the hospitals cash pay rates, you will be in for a shock!

A hospital might acquire a drug for $1,000 via 340B but receive $3,000 in reimbursement from a commercial insurer. That's a $2,000 profit per prescription. Commercial payers reimburse at 3.8 times 340B acquisition costs.

Meanwhile, PBMs and pharmacies extract their own fees. CVS Health charges patients with insurance "dispensing fees" reaching up to $85 per prescription under agreements with hospitals like Cleveland Clinic. Patients without insurance aren't charged these fees.

In 2018, President Trump changed the 340B formula from ASP+6% to ASP-18%. Hospitals dropped 340B participation and moved to for-profit models rather than operate at lower margins.

That behavior tells you everything about intent.

When the financial incentive shifted, hospitals abandoned the program entirely. The Supreme Court later ruled CMS lacked authority for the change, putting the government on the hook for $9 billion in repayments.

Transparency and reporting. Mandatory reporting down to the line item and quantity purchased, including the amount of money provided in charity care at the patient level.

Price transparency at the hospital level so you can see how much is being billed for each service. Transparency for 340B entities so you can see exactly where the money comes from and how it's used within the hospital.

That granular transparency makes the arbitrage visible in real time.

Regulators don't understand healthcare and have treated it like a third rail. Government intervention gets gamed. Reform will come from patient revolt once this exploitation becomes widely understood.

You need to know where you're paying more with insurance than you would via cash pay. You need to see how hospitals game the system to line their own pockets while sending patients to collections without mentioning charity care options or payment plans.

The nonprofit status is just a tax shield. It means nothing to how they think about patients.

When hospitals claim changes to 340B will force them to close departments, ask why they won't reduce executive compensation first. That choice shows you where their allegiance lies.