Is 340B good for the healthcare system? 

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https://www.managedhealthcareexecutive.com/view/is-340b-good-for-the-healthcare-system-takeaways-from-an-mhe-drug-topics-webinar

Key Takeaways

  • Absence of mandatory federal reporting on 340B revenues and expenditures is viewed as the program’s core governance gap, despite existing audit authority focused on duplicate discounts and diversion.
  • Eligibility criteria tied to disproportionate Medicaid/uninsured volume remain contested, with examples showing large academic systems generating far more 340B margin than charity-care outlays compared with public safety-net hospitals.
  • Use of savings ranges from keeping small hospitals solvent to subsidizing high-cost service lines, yet lack of spending requirements can incentivize expansion in affluent markets and shift costs to payers.
  • Manufacturers are criticized for contract-pharmacy restrictions and demands for claims data, while also allegedly pricing 340B discounts into list prices; limited HRSA rulemaking authority perpetuates litigation.

Does the 340B program help hospitals provide care and other services to low-income patients? Or has the program grown beyond what was initially intended, with undeserving institutions taking advantage of it?

Two industry leaders addressed these questions and more during a webinar sponsored by Managed Healthcare Executive, Drug Topics and the Pharmacy Benefit Management Institute.

Tom Kraus, J.D., chief advocacy officer and vice president of government relations at the American Society of Health-System Pharmacists, argued in favor of the program’s value to patients. “Hospitals are still operating on incredibly thin margins across the board. The average is around 1%; almost half are operating at negative margins. It’s just not true that they’re somehow getting rich off this. They’re using it to provide patient care in communities that need it and to patients that need it.”

But Shawn Gremminger, president and CEO of the National Alliance of Healthcare Purchaser Coalitions, said the program has “grown out of control, and it doesn’t have the guardrails it needs. What 340B has tried to accomplish is absolutely valid; I fully support it. But it’s plainly obvious to anybody that the time is now for Congress and policymakers to get together and say we can make this program actually work.”

The 340B program allows qualifying hospitals and other providers, such as federally qualified health centers, to purchase medications at discounted rates from drug manufacturers and use the difference between the discounted price and the reimbursement from commercial insurers and other payers to fund patient care services.

The 340B program generated roughly $100 billion in discounted drug purchases last year, growing 23%, compared with less than 10% growth in overall U.S. prescription drug spending.

Since its implementation in 1992, more than half of U.S. hospitals participate in the program.

The Health Resources & Services Administration (HRSA), which oversees the 340B program, is currently reviewing comments and determining next steps for a pilot 340B rebate program for drugs that were part of the Inflation Reduction Act’s Medicare Drug Price Negotiation Program.

Here are four key takeaways from the webinar:

1: Transparency and oversight

There is no federal requirement that hospitals report how much 340B revenue they collect or how they spend it. Gremminger argued that this absence of reporting is the program’s central flaw. “The underlying problem with 340B is it creates economic distortions,” he said. “The program is so problematic because it has virtually no oversight. The Health Resources and Services Administration, which oversees nominally 340B, has been found by courts to have basically no ability to actually create rules.”

Gremminger said payers want to know how much hospitals make and what they do with the money. He pointed to states, such as Minnesota, that are beginning to require covered entities to report this information.

Kraus countered that HRSA and manufacturers already have audit authority when there is a specific concern, such as a suspected duplicate discount, and that 340B dollars are not separately traceable once they reach a hospital’s books.

2: What counts as a safety net hospital?

Much of the debate centered on which hospitals should qualify for participation in the program. Gremminger cited Minnesota data showing that M Health Fairview, the University of Minnesota’s academic medical center, netted more than $300 million in 340B revenue last year while providing about $17 million in charity care, compared with Hennepin Healthcare, a public safety-net hospital that made roughly $100 million in 340B revenue against $107 million in charity care. He argued dollars are flowing disproportionately to large, financially healthy systems rather than the rural and community providers the program was designed to protect.

Kraus said that hospitals in the program already treat a disproportionate share of Medicaid and uninsured patients to qualify. “The states have said payers should pay the normal rate, and they want the clinic or hospital to be able to use those dollars to subsidize care in their communities. I think that’s like a reasonable decision that states can make, and I think from my perspective, it helps us provide care to patients.”

3: What services should 340B dollars fund?

Kraus maintained that the law implies, though does not strictly require, that 340B savings support safety net care and noted three-quarters of small participating hospitals use the savings simply to stay open. Additionally, he said large academic centers often house the trauma centers, cancer centers, and emergency departments that require substantial, ongoing subsidy.

“At the end of the day, the program exists in order to subsidize the care of patients by allowing providers to purchase at a lower cost and sell to payers at a higher cost, which is the contracted rate. The program’s not designed to subsidize payers; it’s designed to subsidize providers so that they can survive.”

Gremminger said the lack of any spending requirement means some systems reinvest the 340B margin into facilities in higher-income, better-insured markets rather than expanding services for low-income patients, calling that an economic distortion that raises costs for employers, taxpayers, and working families through reduced Medicaid rebates and higher commercial pricing.

4: Pharma’s role in drug pricing

Both panelists were critical of drug manufacturers, although for different reasons. Kraus said pharmaceutical companies, which he noted operate on roughly 40% margins compared with hospitals’ roughly 1%, have pursued restrictions on contract pharmacy arrangements that have ended up in litigation. Manufacturers such as Eli Lilly are now requiring covered entities to turn over claims data as a condition of receiving discounts, which he characterized as a “fishing expedition” rather than a targeted integrity effort.

Gremminger agreed pharma bears responsibility for high drug prices because companies simply prices 340B’s cost into list prices, which he argued undermines any savings the program is meant to generate. Both agreed HRSA lacks the statutory authority for meaningful rulemaking, a gap they said invites continued litigation between manufacturers and hospitals.

Why a Conversation May Be the Highest-ROI Investment a Healthcare CEO Can Make

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https://www.healthleadersmedia.com/hlm-exchange/check-ins-charles-why-conversation-may-be-highest-roi-investment-healthcare-ceo-can?utm_source=HealthLeaders&utm_campaign=a335f23e8b-EMAIL_CAMPAIGN_2026_07_07_12_38&utm_medium=email&utm_term=0_adc94e5966-a335f23e8b-532959885&mc_cid=a335f23e8b&mc_eid=71a6a1464f

One of the most impactful leadership tools isn’t a new technology, consulting framework, or operational initiative. It’s being human. 

Hospital and health system leaders spend countless hours reviewing financial dashboards, quality metrics, staffing ratios, and strategic plans. Yet one of the most impactful leadership tools is much more simple: lunch.

Yes, as in food and conversation. Specifically in this case, a simple practice called “Check-ins with Charles.”

At our June 2026 HealthLeaders CEO Exchange in Avon, Colorado, some of healthcare’s top executives gathered for an honest conversation about leadership, culture, financial performance, and the future of the industry.

During the discussion I moderated, Charles Williams, regional president at Baylor Scott & White, covered everything from revenue cycle management and physician engagement to CEO succession planning.

Yet one of the most compelling ideas shared that afternoon (and that had all the other CEOs rapidly engaging) had nothing to do with technology, reimbursement models, or operational restructuring. It was Williams’ leadership initiative “Check-ins with Charles.”

The concept is remarkably simple. On a regular basis, Williams invites a randomly selected group of employees—from nurses and environmental services staff to finance professionals and administrative team members—to an informal Chick-fil-A lunch. There is no PowerPoint presentation. There are no scripted talking points. There is no formal agenda. The purpose is simply to listen.

As Williams explained during the discussion, the impact has gone far beyond an hour spent sharing a meal.

“When that email goes out,” he told the group, “it’s not that guy, it’s Charles.”

That distinction may sound small, but in today’s healthcare environment, it represents something much larger: trust.

Healthcare executives spend enormous amounts of time analyzing financial statements, reviewing quality metrics, discussing workforce shortages, and developing strategic plans. Those activities are essential. But as the CEO Exchange conversation repeatedly demonstrated, strategy only succeeds when people believe in the leaders asking them to execute it.

Trust Before Strategy

Healthcare leaders often focus on execution. We talk about operating margins, revenue cycle performance, patient experience scores, physician productivity, employee retention, and quality outcomes.

Those metrics matter, but execution doesn’t begin with dashboards. It begins with trust.

One of the recurring themes throughout the CEO Exchange was that organizations often fail to communicate proactively because leaders and employees simply don’t know one another well enough. Everyone is busy. Calendars are full. Meetings dominate the day. Yet when leaders become disconnected from the frontline, small problems stay hidden until they become expensive crises.

Williams described how “Check-ins with Charles” has become one way to eliminate that disconnect.

The informal lunches allow employees to speak openly in a setting where titles disappear. Clinical and non-clinical staff have an opportunity to ask questions, offer suggestions, and discuss concerns directly with the CEO.

He complements those lunches with another simple communication strategy: a monthly three-minute video message. Sometimes the videos are intentionally lighthearted—wearing a Valentine’s shirt covered in hearts or joking with employees—to demonstrate vulnerability and approachability.

The objective isn’t entertainment, it’s accessibility, and employees stop seeing “the president” and begin seeing a person.

That shift has produced measurable results.

Williams shared that following these consistent communication efforts, his organization achieved the highest employee engagement survey participation rate in its history.

Participation itself isn’t the end goal, but it is an important indicator. Employees generally do not take time to provide honest feedback unless they believe leadership is genuinely listening and prepared to act on what they hear.

Communication Is Operational Strategy

Several executives around the table reinforced the same lesson with their own experiences.

One CEO of a health system in Connecticut described taking over responsibility for revenue cycle despite coming from a nursing background. Rather than pretending to understand every technical aspect of billing and coding, she gathered everyone into one room and admitted what she didn’t know.

Many of those employees had worked in the same building for years but had never truly collaborated.

Together, they established shared expectations, defined key performance indicators, and began meeting regularly.

The results were dramatic.

Claim denials declined significantly. Departments that previously blamed one another started solving problems together. Frontline registration staff, physicians, coding teams, and revenue cycle leaders finally understood how each person’s work affected the others.

The improvement didn’t begin with a new software platform. It began with communication.

Another executive discussed regularly spending half a day shadowing frontline employees. Dressed in scrubs, he works alongside environmental services, nurses, and other team members—not as a symbolic exercise, but as a learning opportunity.

Those interactions consistently reveal operational problems that never surface in executive conference rooms.

Employees become comfortable sharing frustrations, identifying inefficiencies, and suggesting improvements because the hierarchy has temporarily disappeared.

Another participant emphasized that finance leaders should spend time in clinical environments, while clinicians should gain greater appreciation for financial decision-making. When each group understands the other’s daily challenges, collaboration replaces conflict.

As one executive noted, communication is often the bridge between operational excellence and financial performance.

The Hidden ROI of Listening

Communication is frequently categorized as a ‘soft skill,’ and honestly my boss always told me to stay away from these soft stories, but the executives at the CEO Exchange argued exactly the opposite.

Strong communication produces measurable business outcomes.

Research has indicated that organizations that foster open dialogue often experience:

  • Higher employee engagement and retention
  • Better cross-functional collaboration
  • Earlier identification of operational issues
  • Faster execution of strategic initiatives
  • Greater psychological safety for innovation
  • Stronger patient experiences driven by more engaged caregivers

These observations align with broader workforce research. The firm Gallup has consistently found that highly engaged business units outperform less engaged teams across profitability, productivity, turnover, safety, absenteeism, and customer satisfaction. While healthcare has its own unique challenges, the underlying principle remains the same: Engaged employees produce stronger organizational performance.

The roundtable offered numerous examples.

Finance leaders make better decisions after seeing clinical operations firsthand.

Clinicians become more thoughtful stewards of organizational resources when they understand how financial performance affects future investments.

CEO Turnover Comes at a Cost

The conversation eventually shifted to another challenge facing healthcare organizations: executive turnover.

Participants noted that the average tenure of a hospital CEO today is generally somewhere between three and five years, a figure that aligns with data from the American College of Healthcare Executives (ACHE), which has long reported average hospital CEO tenure at approximately five years nationally.

The executives argued that frequent leadership turnover carries enormous organizational costs.

Every leadership transition requires employees to learn a new leadership style, interpret new priorities, and adapt to another strategic vision.

One executive described the experience as traumatic for organizations.

Instead of concentrating on executing strategy, employees spend valuable time trying to understand the expectations of the incoming CEO.

Another participant observed that boards are often searching for a “silver bullet” during difficult financial periods, replacing leaders before long-term strategies have time to mature.

The result can be an endless cycle of organizational resets.

Several executives pointed to health systems where senior leaders have remained in place for more than a decade as examples of how leadership stability creates a competitive advantage.

Williams discussed Baylor Scott & White’s intentional focus on developing internal leadership pipelines. Potential future presidents and chief operating officers are paired with experienced mentors well before succession becomes necessary, ensuring continuity and preserving organizational culture rather than forcing each new leader to reinvent it.

Culture Isn’t Built in the Boardroom

Perhaps the most memorable story shared during the discussion came from another longtime hospital CEO.

While ordering lunch in the cafeteria, he asked for a very small salad.

The cafeteria employee smiled, placed a single piece of lettuce into the bowl, and asked, “Is that small enough for you?”

Rather than feeling disrespected, he viewed it as one of the proudest moments of his career.

The interaction demonstrated that an employee felt comfortable enough to joke with the CEO.

There was no fear, there was trust.

That, the group agreed, is what culture looks like.

Not mission statements.

Not values posters hanging in hallways.

Not speeches from the executive suite.

Culture is built through everyday interactions that convince employees they are seen, heard, respected, and safe enough to speak honestly.

Leadership That Listens

Healthcare continues to face unprecedented pressure—from workforce shortages and financial uncertainty to AI, rising consumer expectations, and increasing regulatory complexity.

No CEO can personally solve every challenge facing a modern health system.

Every CEO, however, can create an environment where employees feel comfortable identifying problems early, collaborating across departments, and contributing ideas before issues become crises.

That is the real lesson behind “Check-ins with Charles.”

It isn’t really about Chick-fil-A or even about lunch. It is about replacing hierarchy with humanity.

The conversations in Avon made one thing abundantly clear: Organizations that invest time in authentic communication build trust. Trust strengthens culture. Strong cultures execute strategy more effectively. And better execution ultimately produces stronger financial performance.

For healthcare leaders searching for a competitive advantage in an increasingly complex industry, one of the highest-return investments may not be found in the next technology platform or consulting engagement.

It may simply be sitting down at a table, sharing a meal, and asking one question:

“What do you think we could do better?”

Average Medicare vs Medicaid Reimbursement to Hospitals as a Percentage of Cost

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Medicare reimburses hospitals at an average of 82% to 87% of the actual cost of providing patient care. According to long-term data from the American Hospital Association (AHA) and the Congressional Budget Office (CBO), this means hospitals face a shortfall, receiving roughly 82 to 87 cents for every dollar they spend caring for Medicare beneficiaries.

Financial Impact and Hospital Margins

Because Medicare reimbursement rates are fixed by the federal government, they often fail to keep pace with the rising costs of labor, drugs, and supplies:

  • Negative Profit Margins: The Medicare Payment Advisory Commission (MedPAC) reported that hospitals experienced an average -12% margin on fee-for-service Medicare services, with projections remaining deeply negative at -10%. [1]
  • Widespread Losses: Approximately 67% of all U.S. hospitals operate at a net financial loss specifically on their Medicare patient population. [1]
  • Aggregate Underpayments: This payment-to-cost deficit translates to roughly $99.2 billion in annual underpayments that hospitals must absorb or offset through other revenue streams.

How Hospitals Balance the Deficit

To remain financially viable while absorbing underpayments from Medicare and Medicaid, hospitals rely on cost-shifting to the private sector:

  • Commercial Insurance Rates: Private, employer-sponsored health plans pay hospitals significantly more to subsidize public program shortfalls. On average, commercial insurers reimburse hospitals at 196% to 199% of Medicare rates.
  • Payer Mix Vulnerability: Hospitals located in regions with high concentrations of elderly or low-income residents are at higher financial risk. At 96% of U.S. hospitals, government programs (Medicare and Medicaid) account for more than half of all inpatient days.

If you are tracking hospital financials or healthcare policy, would you like to see how Medicaid reimbursement rates compare, or look closer at the differences between inpatient and outpatient Medicare payment structures?

Medicaid reimburses hospitals at an average of 88% to 90% of the actual cost of care, but this figure heavily relies on supplemental government funding. Without these extra state and federal payments, standard Medicaid base rates only cover roughly 58% to 65% of hospital costs.

Because Medicaid is jointly funded by federal and state governments, the exact payment-to-cost ratio varies wildly by state, fluctuating between 49% and 169% of Medicare benchmarks.

The Core Components of Medicaid Payments

Medicaid hospital payment structures are highly complex and divided into two primary tiers:

  • Base Rates (Severe Shortfalls): Standard Fee-For-Service (FFS) base rates and Managed Care Organization (MCO) plans pay well below actual expenditures. According to industry data published by the American Hospital Association (AHA), standard MCO plans cover just 65 cents on the dollar, while FFS base payments plummet to 58 cents on the dollar.
  • Supplemental Payments (The Lifeline): To minimize this gap, states issue extra payments to hospitals. These account for over 52% of total Medicaid hospital spending nationwide and are broken down into:
    • Disproportionate Share Hospital (DSH) Payments: Extra funds legally required for safety-net hospitals serving high volumes of low-income or uninsured patients.
    • Non-DSH Supplemental Payments: Upper Payment Limit (UPL) adjustments and state-directed payments meant to artificially boost base rates closer to commercial or Medicare levels.

Operational Impacts on Hospitals

The gap between Medicaid base reimbursement and actual cost strains hospital systems in several distinct ways:

  • Widespread Financial Loss: Even after accounting for all safety-net supplemental payments, roughly 62% of U.S. hospitals operate at a net loss on their Medicaid patient populations.
  • Aggregate Underfunding: The total nationwide Medicaid underpayment deficit adds up to approximately $24.8 billion annually that hospitals must absorb.
  • The Commercial Subsidy: Because public programs underpay, hospitals shift costs onto employer-sponsored health plans. As a result, private insurers are charged nearly double (up to 200%) what Medicare and Medicaid pay for the exact same medical services.

The Fragile Economics of Safety-Net Care

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https://www.healthleadersmedia.com/cfo/hennepin-healthcares-rescue-package-reveals-fragile-economics-safety-net-care?utm_source=HealthLeaders&utm_campaign=513090240d-EMAIL_CAMPAIGN_2026_06_18_02_52&utm_medium=email&utm_term=0_adc94e5966-513090240d-532959885&mc_cid=513090240d&mc_eid=71a6a1464f

Minnesota lawmakers approved a $205 million funding package to stabilize Hennepin Healthcare, but it underscores that the safety-net risk is escalating. Here’s what Hennepin told us.

KEY TAKEAWAYS

Hennepin’s financial struggles highlight how hospitals with heavy Medicaid and uninsured populations remain vulnerable when reimbursement growth lags expense inflation.

CFOs should model scenarios involving Medicaid funding reductions, rising uncompensated care, and sustained labor-cost pressures to assess liquidity and capital needs.

While government funding can provide short-term relief, finance leaders should focus on long-term sustainability through revenue diversification, service-line optimization, and proactive advocacy efforts. 

Hennepin Healthcare’s financial crisis has become one of the most closely watched healthcare stories in the country. Now bolstered with state funding, its story illustrates the mounting pressure on safety-net hospitals.

The CFO Take Away

Think of this headline as an underscore to the growing vulnerability of health systems whose payer mix is concentrated in government programs. Hennepin Healthcare’s situation demonstrates that even large, clinically essential institutions can find themselves in liquidity crises when reimbursement growth consistently trails expense inflation.

CFOs should view this as a warning to stress-test their organizations against scenarios involving Medicaid funding reductions, higher uncompensated-care volumes, and continued labor-cost pressure. The strategy lesson here is that traditional margin-improvement initiatives alone may not be enough. CFOs should be strengthening advocacy efforts, diversifying revenue streams where possible, reassessing service-line profitability, and building long-range capital plans that assume greater reimbursement volatility.

The market is tightening, and the broader takeaway is that safety-net economics are becoming a board-level risk issue. Organizations that wait until cash reserves deteriorate before pursuing structural solutions will find themselves relying on emergency legislative interventions rather than executing deliberate financial strategy.

The System

Hennepin Healthcare leaders have warned lawmakers that the organization faces severe financial challenges driven by a combination of factors: rising labor and operating costs, inadequate reimbursement from government programs, and a heavily Medicaid-dependent population.

The system has already tried to shrink costs by reducing beds and eliminating services, while seeking additional state support to stabilize operations. But policymakers ultimately negotiated a funding package worth approximately $205 million to help preserve the organization’s role as Minnesota’s largest trauma center and a critical provider for vulnerable and low-income populations.

In an email to me, the system stated:

“Hennepin Healthcare is deeply grateful to the lawmakers who acted with urgency and collaboration, and to our employees, patients, and advocates whose voices brought needed attention to this crisis. The stabilization funding does not resolve the long-term impacts of HR1 or the structural deficits that uniquely challenge safety-net hospital systems. But it does accomplish two essential things: it delivers historic support that sustains us, and it gives us the time and stability to work with the state on durable, long-term solutions.

Our immediate priorities are to stabilize our team and invest in patient care while carefully stewarding the funds allocated to us. We have essential needs that have been deferred because of financial challenges, including staffing, equipment, and other investments that support patient care.

Looking ahead, our strategy is focused on both operational improvement and long-term sustainability. We will continue working with state leaders, the Governor-appointed task force, and our future professional governing board to identify lasting solutions that strengthen Minnesota’s healthcare safety net and ensure Hennepin Healthcare can continue serving patients for generations to come.”

It’s clear the system views the package only as a bridge. It’s obviously not a solution. But beyond that, it’s also clear that this is not a Minnesota-confined story.

Hennepin Healthcare showcases the financial fragility of safety-net hospitals nationwide. In 2023, well before any of today’s Medicaid chaos, safety-net hospitals provided roughly $11 billion in uncompensated care.

Roughly three-quarters of Hennepin Healthcare’s patients are uninsured or covered by public insurance programs, creating a structural gap between the cost of care and reimbursement levels.

Hennepin Healthcare was projecting up to $50 million in operating losses for 2026 and a staggering $1.7 billion in deficits over the next decade. The organization’s repeated losses and dependence on government intervention underscore the challenges many urban safety-net systems face as Medicaid funding uncertainty, amongst other pressures, converge.

Roosevelt on Leadership Integrity

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Theodore Roosevelt believed that doing the right thing required courage, responsibility, and moral character—even when it was difficult or unpopular. He argued that people should act with integrity rather than seek the easiest path.

Roosevelt consistently taught that strong character was built through honest work, personal responsibility, and the willingness to stand up for what was just. He believed that individuals—and nations—became stronger when they chose duty over convenience.