States of Healthcare

Interview with Dr. Madeline Carpinelli Wallack, 340B Policy and Compliance Expert 

“There is this idea that a stereotypical 340B hospital needs to be poor with roaches in the basement. That mindset is a real disservice. Everybody deserves equal access to good care.”

– Dr. Madeline Carpinelli Wallack, PhD, MS

The Rise of 340B Consciousness

There was a time when few people outside of niche health policy circles knew about the 340B Drug Pricing Program. Over the past twenty-five-plus years that Dr. Madeline Carpinelli Wallack has been working in 340B, she has watched this change. 

In the early 2000s, Madeline worked in the Office of the Inspector General on government drug price programs and would call hospitals to validate information. At the time, about half of the hospitals Madeline called had no idea what 340B was, despite having signed up. Now, inquisitive airplane seatmates recently remarked “Oh 340B?” when hearing her describe her work, much to her surprise. 

So what happened to elevate a 1992 drug discount program from obscurity and transform it into one of the perennial health policy hot topics?

Section 340B of the Public Health Service Act is relatively straightforward. Pharmaceutical manufacturers that sell to government programs (e.g., Medicare, Medicaid –this is essentially all manufacturers) must provide hospitals and medical centers that care for a large population of low-income patients with discounts on outpatient drugs. These centers then receive non-discounted, normal reimbursement. The wider margin provides them with a profit boost to help offset the financial strain associated with being a safety net hospital. 

The composition of insurance types within a hospital’s patient population is a key driver of hospital revenue. Private commercial insurance, employer-sponsored or purchased from the Affordable Care Act marketplace, usually reimburses care at the highest rate among payers. Medicare typically pays about half of commercial rates for hospital services. Medicaid rates vary by state but can be half of Medicare rates in some states. Because of the wide range in payment based on insurance type, hospitals with more commercial patients get paid more than those with more Medicaid patients. 

“What 340B is really supposed to do is level the playing field for institutions that get paid poorly by Medicare and Medicaid. If you’re getting underpaid or paid at cost, there needs to be a way to infuse those entity types with some cash,” Madeline explains. “This would normally be a tax, but instead 340B says ‘Hey drug manufacturers, if you’re going to keep your prices this high, then the tradeoff is that you will give 340B entities this discount.’”

340B was introduced by HRSA, the unit within HHS that oversees public health. While there are several categories of 340B entitles, the two largest participants by volume are disproportionate-share hospitals (DSHs) and federally qualified health centers (FQHCs). All 340B entities also must either be nonprofit or government-run.

DSHs meet certain disproportionate share percentage thresholds, which are calculated from a 1985 Medicare formulathat weights a hospital’s Medicaid and Medicare patient population based on hospital days. Certain DSH levels alsounlock higher Medicare reimbursements for hospitals. 

FQHCs are federally funded outpatient community clinics that provide primary care and other essential health services in medically underserved areas and offer a sliding fee scale for those earning below 200% of the federal poverty line (in 2025 $15,650 for an individual, $32,150 for a family of four). [Longtime readers might recall FQHCs from ourWisconsin interview with Melissa, a public health educator who works at the Gerald L Ignace Indian Health Center, an FQHC.]

Separate from 340B, there are also rules that require drug manufacturers to pay a rebate back to Medicaid for sales to these programs. Medicaid has its own rebate calculation rules, including a key rule called Medicaid Best Price – if a manufacturer ever gives any other entity a better pricing deal, then they have to match it for Medicaid. These rebates result in a lower net price for Medicaid (rebates are also common for commercial payers and typically the rates are closely guarded secrets). The Medicaid best price factors into the 340B ceiling price calculation. Notably, there is a 340B rule prohibiting manufacturers from having to pay duplicate discounts to the government – so the manufacturer should only ever give the 340B discount or pay back the Medicaid rebate but not both. 

As you might imagine, operationalizing this type of tracking and making sure every group is billed and paid correctly is complicated. Also, the stakes are high for many reasons, including that missteps can quickly amount to government fraud which could trigger big fines and even jail time through protections like the False Claims Act. If you are a 340B entity, you just might need an expert to help.  

The Road to Expertise

Madeline began cultivating her 340B career early.

As an undergraduate political science major, Madeline interned on the Hill as Congress finalized the Balanced Budget Act of 1997, a bipartisan Clinton-era Act that aimed to reduce the national deficit via significant reforms to Medicare and Medicaid, including the creation of Medicare Advantage’s precursor. After graduation, she joined the Chicago Office of the Inspector General (OIG). The OIG is the unit within the Department of Health and Human Services (HHS) responsible for eliminating fraud and abuse and promoting efficiency.

Madeline’s first study at the OIG involved 340B use for AIDS Drug Assistance Programs, one of the eligible entities. Her director, who became a mentor, told Madeline that she could focus on 340B as long as she wanted. That started seven years of 340B-focused work at the OIG. 

After departing the OIG, Madeline ran into pharmacoeconomics professor Dr. Stephen Schondelmeyer, who she had previously collaborated with at the OIG. He invited Madeline to come get her master’s and doctorate degrees while researching for him at the University of Minnesota, so she returned to school. 

Dr. Schondelmeyer also served as an expert witness in litigation about drug pricing, focusing on average wholesale price (AWP) and Medicaid reimbursement. This introduced Madeline to the idea of shaping her career around being a subject matter expert. Today, Madeline is working on several cases in 340B.

When Madeline completed her doctorate, she and another former OIG collaborator Suzanne Herzog cofounded Rx|X Consulting, where Madeline has retained her focus on 340B, including audits and dispute resolution between states, manufacturers, and entities. Post-Affordable Care Act (ACA), they also started contracting for HRSA as they began conducting audits of covered entities and manufacturers. 

Since Madeline works fully remotely with Rx|X Consulting, her family has taken advantage of opportunities to move to places of interest, including France, Maine, and now most recently to Colorado (population: 6M). 

Famous Coloradans include South Park creators Trey Parker and Matt Stone (and their fictitious South Park, Colorado characters), Titanic survivor “the Unsinkable Molly Brown,” and pop band OneRepublic (singers of the iconic Top Gun: Maverick beach football montage song among many other hits). 

A 2025 study ranked Colorado as the second healthiest state in America, citing its lowest rates of obesity in the country and high outdoor activity rate. Madeline confirms that Colorado indeed feels like a healthy place to live, noting its proximity to the mountains as a driver of the state’s culture. Like many Coloradans, Madeline and her family take advantage of the ability to ski from winter through early spring. 

While 340B is a federal rule, there is some variation in enforcement at the state level. One aspect evolving at the state level is the use of 340B contract pharmacies. 340B contract pharmacies are retail pharmacies that 340B entities partner with so that while the 340B entity purchases the drug at the special discounted rate, the pharmacy can dispense the drug to the patient at the likely more convenient location. The retail pharmacy then charges the manufacturer service and data fees and retains a portion of the drug reimbursement rate. In 2025, almost 60% of American pharmacy locationswere registered as 340B contract pharmacies. 

Pharma manufacturers have pushed back against providing the 340B discounted price for all 340B entity-led transactions that go through contract pharmacies, with several manufacturers filing lawsuits. In 2025, Colorado passed a law prohibiting drug manufacturers from limiting 340B contract pharmacy use or otherwise restricting the scope of the 340B program. Manufacturer AbbVie sued the state, arguing that the Colorado law violated the federal enforcement of 340B. While the litigation is ongoing, the Department of Justice submitted a brief to the court in support of AbbVie in February. 

The 340 Boom

In 2012, 3,129 hospitals and centers were enrolled in 340B. In 2022, there were 5,085, a 63% increase. In 2012, 340B entities purchased $6.9 billion in covered drugs through the program. In 2022, 340B entities purchased $53.7 billion, a 678% increase. 

“It’s true that 340B looks really different now from its start, but the rest of the healthcare market is different too. There are so many things that go into why a hospital is or isn’t successful. We’re seeing more and more hospital consolidation, but we have to consider all the changes in the industry. We can’t forget about payer contracting, PBMs, site of service reimbursement, and changes to other government programs.”

In 2012, Modern Healthcare reported 109 hospital merger and acquisition deals affecting 352 hospitals. In the following years, hospital mergers and acquisitions peaked in 2017 and 2018 at approximately 120 transactions, and in 2022, Modern Healthcare remarked upon a decade-plus low with only 55 deals. 

Hospital closures, especially in rural areas, cause concern about both care access and affordability. From 2005 to 2023, almost 190 rural hospitals closed in America. A 2025 Health Affairs study found that rural hospital closures led nearby remaining hospitals to increase their prices by approximately 4%. 

“When there’s a race to the bottom to pay the least to hospitals and health centers, then there’s little to no room for margin. In my experience, hospitals come together when there is a resource issue. Then they gain resources like the broader system’s IT, centralized management, and billing department,” Madeline explains. “People tend to put hospitals into a bucket that’s distinct from even pharma, and then you start getting into these arguments about whether that hospital should be a part of this or that system. People forget that hospitals are businesses, too.” 

What Comes Next: The Future of 340B

Many politicians support reforming the 340B program, but how to reform is much disputed. The reality is more complicated, but much of the discourse can be organized into hospital versus pharma industry perspectives.

“From the pharma side, their view is that this program is too big, we need to cut it. And from the 340B entity side, their view is no it doesn’t need to be cut at all,” Madeline explains.

Hospitals argue that 340B supports the financial sustainability of nonprofit hospitals that already face solvency headwinds, such as the loss of ACA subsidies likely driving up the uninsured population in the near-future which could result in more unpaid care for hospitals. 

The pharma industry champions downsizing 340B. They argue that the program drives up drug prices. They argue that it has become far larger than intended and that its size is proof that the program has exceeded its original mission. 

That point comes up a lot, and Madeline disagrees. “I was working with HRSA at the time 340B contract pharmacy was finalized, and I don’t recall any conversations about concerns about size or about limits on size.” 

Pharma manufacturers also argue that the profits from 340B do not necessarily fund charity care. They also point out that 340B does not lower prices for patients. 

The pharma industry supports any Congressional efforts to “ensure that only true safety-net entities are participating in 340B” and to require that 340B entities and contract pharmacies “pass through 340B discounts to reduce the cost of medicines” for patients. 

“There is this idea that a stereotypical 340B hospital needs to be poor with roaches in the basement. That mindset is a real disservice. Everybody deserves equal access to good care,” Madeline recounts. “If 340B saving supports new MRI machines or better recruitment for providers or expands pharmacy services, then we have to consider the improvements to the community. Also, hospitals need to be sustainable businesses. It shouldn’t just be ‘Oh, you’re 340B, and you should be pigeonholed as destitute.’”

Madeline understands that the program is in a tough position. 

“There is a lot of vitriol and hyperbole on both sides about what the 340B program should be. I would love to see all interested parties come together to figure out how we move forward, how we modernize this program for 2026. There needs to be some sort of compromise, and that is not easy,” she summarizes. 

HRSA is currently evaluating shifting the 340B program from its current discount model to a rebate program for at least some drugs. The agency is accepting comments on this review until April 20.