In this episode of the Vital Health Podcast, host Duane Schulthess speaks with Bill Smith (Senior Fellow and Director, Life Sciences Initiative at The Pioneer Institute) to discuss how the 340B program has evolved from a safety net drug discount program into a major source of hospital revenue, what new research suggests about charity care and Medicaid access, and why transparency, hospital consolidation, and broader drug pricing policy are reshaping incentives across oncology and biopharma. Key Topics: 340B Origins: Medicaid best price, safety net intent, clinic and hospital eligibility. Hospital Arbitrage: Buy-low sell-high incentives, affluent satellite sites, oncology drug spreads. Charity Care: Lower reported charity care, Medicaid access concerns, variation across hospital systems. Transparency Reforms: State reporting laws, separate audited accounts, minimum charity care requirements. Policy Collisions: Inflation Reduction Act (IRA) price controls, Most-Favored-Nation (MFN) pressure, oncology consolidation, biopharma investment risks. Opinions expressed are those of the speakers. Recorded 6/5/26. The Vital Health Podcast is a production of Vital Transformation LLC © 2026. See omnystudio.com/listener for privacy information.

Bill Smith: How 340B Became A Hospital Profit Center

Vital Health Podcast

# Full Transcript

**Podcast:** Vital Health Podcast

## Transcript

I'm Duane Schulthess. Welcome to this Vital Health Podcast. Today I'm joined by William Smith, Director of Life Sciences at the Pioneer Institute. Bill, it's great to see you at your home. Thank you. My pleasure. Thank you for having me back. It's always nice to talk to you, Bill. Last time we discussed the ins and outs in the world of QALY. Today we're talking about something else, something that's much more of a la mode, I think, something that's really going on today.

Yesterday you presented results of your preprint study on 340B, comparing 340B hospitals to non-340B hospitals. Can you start off by just telling us what exactly is a 340B program aside from a typical government alphabet soup?

Bill Smith Yeah, it goes back to 1992 when it was enacted. The reason they created the program was to correct something that they did a couple years earlier when they enacted the Medicaid best price law. Bill Smith Okay. Bill Smith So pharma companies had given deep discounts on a voluntary basis to hospitals that treated a lot of low income patients and clinics.

Bill Smith And the problem is the Medicaid best price law enacted in 1990 would have required that those prices go to all 50 state Medicaid programs. Bill Smith And of course, the clinics in particular were concerned that prices were going to rise for them because suddenly the prices are going to ripple through all 50 state Medicaid programs.

Bill Smith And prices indeed started rising. And so the clinics went to the Congress and said, you got to pass a drug discount law for us. Bill Smith On the surface, that sounds just fine, right? I mean, it sounds like that should be, it's benevolent, it's charitable, it's everything we should be doing, right, Bill? Isn't that the point? Bill Smith In theory, yes, in theory, especially for the clinics, because the clinics are, in my view, some of the good actors in this system.

Bill Smith But around 2000, at least according to the data, around 2000, hospitals started to figure out that they could arbitrage to discounts. Bill Smith What does that mean? Arbitrage, buy low and sell high. Bill Smith So if they could bring in patients that had good commercial insurance or Medicare, they could buy an oncology drug, say, at a 60% discount, say $100,000 drug they could buy for $40,000.

Bill Smith And then they could bill Medicare or they could bill the commercial insurer $100,000 and they could pocket a $60,000 spread. Bill Smith That really changed the program enormously because hospitals had an incentive to bring in wealthier patients, patients with better insurance. Bill Smith They started opening up satellite offices in wealthy towns and neighborhoods. Bill Smith And I see that in Massachusetts with Mass General. Bill Smith They've gone into Concord and Wellesley and all sorts of affluent towns.

Bill Smith The program really got off track by some hospitals, not all, but some. Bill Smith So...

Bill Smith: How 340B Became A Hospital Profit Center

Transcript

Built for investment professionals

Every day you wait, your competitors are finding
edge in conversations you're not hearing.

Bill Smith: How 340B Became A Hospital Profit Center

Transcript

Built for investment professionals

Every day you wait, your competitors are findingedge in conversations you're not hearing.

Every day you wait, your competitors are finding
edge in conversations you're not hearing.