Your Guide to Understanding the 340B Drug Pricing Program

The 340B drug pricing program is a rebate and savings program that allows qualifying “Covered Entity(s)” to purchase outpatient drugs from manufacturers at reduced and discounted prices. Covered entities are typically hospitals, specialty clinics and their associated outpatient facilities who service uninsured and low-income patients.

Why is 340B important?

Created by Congress in 1992 and then expanded in 2010, under the American Recovery and Reinvestment Act, the federal 340B drug program serves two major purposes:

  1. It helps qualifying hospitals and providers, serving vulnerable populations stretch their limited resources so that they can provide essential services to their communities.
  2. It provides vulnerable patients access to necessary medications that they otherwise would not be able to afford. Covered Entities enrolled in the program can see an average of 25 to 50% in savings on pharmaceutical purchases allowing them to offer free vaccinations, mental health services and chronic disease management programs to their communities. This totaled approximately $67.9B in 2018.

Who is Eligible?

Your hospital must meet one of these classifications:

  • Owned or operated by a state or local government,
  • Private, non-profit with a contract with a unit of state or local government,
  • Public or private non-profit corporation, which is formally granted governmental powers by a unit of state or local government.

You can find the definitions of eligible hospital classifications in section 340B(L)(i) of the Public Health Service Act (PDF – 40 KB). All supporting documentation must be available upon request and should be a part of any auditable records.

Hospitals are required to file a Medicare Cost Report (MCR) annually. This report uses a complex formula to determine a hospitals disproportionate share percentage (DSH). This percentage determines the type of entity and 340B eligibility.


  • Disproportionate Share Hospitals –DSH% 11.75 or greater
  • Children’s Hospitals – DSH% 11.75 or greater
  • Critical Access Hospitals – designation during MCR filing
  • Free Standing Cancer Hospitals – DSH% 11.75 or greater
  • Rural Referral Centers – DSH% is a minimum of 8%
  • Sole Community Hospitals – DSH% is a minimum of 8%

Health Centers

  • FQHCs
  • FQHC Lookalikes
  • Native Hawaiian Clinics
  • Urban Indian Clinics
  • Ryan White CARE Program Grantees
  • Specialized Clinics

Specialized Clinics

  • Black Lung Clinics
  • Title X Family Planning Clinics
  • TB Clinics
  • Hemophilia Treatment Centers
  • STD Clinics

What drugs are covered?

340B drugs are for outpatient use only. The 340B Prime Vendor, Apexus, puts out an exact 340B drug list quarterly. This list can only be accessed by covered entities participating in the program.

Who can receive 340B drugs?

To be eligible to receive 340B-purchased drugs, patients must receive health care services other than drugs from the 340B covered entity. An individual is a patient of a 340B covered entity (with the exception of State-operated or funded AIDS drug purchasing assistance programs) only if:

  1. The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual’s health care;
  2. The individual receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g., referral for consultation) such that responsibility for the care provided remains with the covered entity; and;
  3. The individual receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which grant funding or FQHC Look-Alike status has been provided to the entity.

Why are eligibility qualifications so important?

In order to be 340B compliant, covered entities are responsible for following ongoing requirements and maintaining auditable records. Violating eligibility requirements may result in repaying the discounts to the manufacturer. If those violations are found to be systemic, a covered entity may be disqualified from 340B participation for a period of time.

How Do Hospitals Maintain 340B Compliance?

There are seven points by which compliance is evaluated. If a covered entity chooses to register contract pharmacies and or register child sites, items 8 & 9 apply.

  1. Group Purchasing Organization (GPO) Prohibition

Disproportionate share hospitals, children’s hospitals, and free-standing cancer hospitals may not obtain 340B covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.

  1. Duplicate Discounts

The 340B statute prohibits duplicate discounts, which occur when a covered entity obtains a 340B discount on a medication and a Medicaid agency obtains a discount in the form of a rebate from the manufacturer for the same medication. Covered entities must have mechanisms in place to prevent duplicate discounts.

  1. Medication Diversion

Subparagraph (B) of 42 USC 256b(a)(5) prohibits resale of 340B drugs to a person who is not a patient of the entity.

  1. Program Eligibility

Covered entities must recertify their eligibility every year and notify the Office of Pharmacy Affairs whenever there is a change in their eligibility.  If there is a change in a covered entity’s eligibility status, the covered entity has a responsibility to immediately notify OPA and should stop purchasing drugs through the 340B Program.

  1. Patient Eligibility

Please see Who can receive 340B drugs? above.

  1. Auditable Records

Covered entities are subject to audits from both the federal government and the drug manufacturers. They must be ready for a 340B audit at any time to ensure program compliance.

  1. Database Accuracy

Covered entities are not eligible for the 340B Program unless they are listed in the 340B database and have received a unique 340B ID. They are required to keep their information updated in the database and ensure all details are properly listed. (Wholesalers will not ship 340B drugs unless there is an exact site/address match in the database.)

  1. Contract Pharmacy(ies)

Contract pharmacies must register for the 340B Program and be listed on the 340B OPAIS prior to dispensing 340B drugs on behalf of the covered entity. Covered entities are responsible for ensuring compliance of their contract pharmacy arrangement(s) with all 340B Program requirements.

  1. Outpatient Facility Enrollment

Outpatient facility enrollment is an integral and reimbursable part of the most recently filed hospital cost report. OPA requires submission of the following documentation:

  • Worksheet A and C from the most recently filed cost report. Provide supplemental documentation if the clinics are bundled on the worksheet (e.g., working trial balance);
  • Worksheet S-2 from the most recently filed cost report for sites with a different Medicare number from the main hospital; and
  • Worksheet E, part A, from the most recently filed cost report for hospitals with a DSH adjustment percentage requirement.

In cases where the name of the facility does not match the cost reporting listing, documentation that shows the outpatient facility was filed with the most recent cost report is required.

How is 340B Compliance Monitored?

Compliance in the 340B program is monitored and enforced through audits as well as the annual recertification process.

340B Auditing

HRSA can audit both the covered entity and drug manufacturers to ensure they are in line with 340B requirements. Manufacturers are also authorized to audit covered entities if they can demonstrate reasonable cause and obtain HRSA’s prior approval. However, they are limited to auditing for compliance on the issues of patient definition and duplicate discounts.

340B Recertification

All 340B covered entities must recertify on an annual basis. During the process of recertification, the Authorizing Official will be required to log into the 340B OPAIS, update information as needed, and attest to the covered entity’s compliance with 340B Program requirements.

Registration dates and deadlines

The quarterly registration periods take place from the 1st through the 15th of January, April, July, and October. This is the only time you can submit a new registration. When approved, the start date will be the first day of the next quarter.

Gather all required information

Because you must complete the online registration process in one sitting, be sure to have all the necessary documents on hand. For example, you will need your latest filed Medicare cost report. If you will be using 340B drugs for Medicaid patients, you must provide your Medicaid billing number and/or National Provider Identifier. If you plan to use contract pharmacies, these written contracts must be completed prior to registration.

How Will the 340B Program Likely Change in the Future?

The 340B drug pricing program is a widely discussed topic with advocates and critics alike voicing strong opinions about its many facets. In the last few years, multiple pieces of legislation have come into play that affect the program, but 340B is still helping vulnerable communities get access to quality health care.

To stay updated on the 340B drug pricing program, visit the official HRSA website.

Need Help with Your 340B Program?

With over 20 years of experience and knowledge in the industry, CompleteRx is able to help hospitals maximize savings with an optimized and audit-ready 340B program. We provide experienced, reliable support to walk you through the entire process of becoming a 340B entity.

We specialize in staff training, external 340B audits, evaluation, consulting, HRSA audit preparation, manufacturer audits, and developing corrective action plans. We focus on compliance so you can focus on what matters most – delivering compassionate care to your community.

Let us help you navigate the complex and evolving guidelines that are the key to protecting your important program savings.