Your Guide to Understanding the 340B Drug Pricing Program

Why is 340B Important?

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

• It enables eligible hospitals and healthcare providers, serving vulnerable populations, to maximize their limited resources and deliver essential services to their communities. 
• It ensures that vulnerable patients have access to essential medications that might otherwise be unaffordable. Through the program, covered entities can save 25 to 50% on pharmaceutical purchases, enabling them to provide their communities with mental health services, free vaccinations, and chronic disease management programs. In 2018, these savings amounted to $67.9B.

Who is Eligible?

Your hospital must meet one of these classifications:

• Owned or overseen by a local or state government, 
• Private, non-profit with a contract with a unit of local or state government,
• Public or private non-profit organization that has been officially delegated governmental authority by a local or state government entity.  

The definitions of eligible hospital classifications are in the 340B section of the Public Health Service Act. All supporting documentation must be available upon request and should be included in any auditable records. 

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

Hospitals

• Disproportionate Share Hospitals –DSH% 11.75 or greater
• Children’s Hospitals – DSH% 11.75 or greater
• Essential Access Hospitals – designation during MCR filing
• Independent 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

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

What Drugs Are Covered?

The 340B Drug Pricing Program covers a diverse array of outpatient prescription drugs for mixed-use facilities and contract pharmacies affiliated with eligible covered entities. 

These medications include a wide range of brand-name, generic, and over-the-counter drugs approved by the U.S. Food and Drug Administration (FDA) and listed on the program’s official database maintained by the HRSA.

The program includes:

• medications used for the treatment of chronic or acute illnesses,
• specialized drugs,
• orphan drugs,
• medications used in the management or prevention of specific conditions such as HIV/AIDS, cardiovascular disease, cancer, or diabetes. 

Mixed-use facilities, including community health centers, hospitals and other healthcare providers, can access discounted prices for eligible drugs dispensed to patients receiving outpatient services, regardless of the setting. 

Similarly, contract pharmacies affiliated with covered entities can dispense eligible drugs at discounted prices to eligible patients served by the covered entity. This can extend the program’s reach and facilitate access to affordable medications for underserved populations.

Who Can Receive 340B Drugs?

To qualify for 340B-purchased drugs, patients must obtain healthcare services beyond just medications 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:

• The covered entity has a documented relationship with the individual, ensuring that it maintains records of the individual’s healthcare services;
• The individual receives health care services from a provider who is either employed by the covered entity or delivers care through contractual or referral arrangements, ensuring that the covered entity retains responsibility for the patient’s treatment, and;
• The individual receives healthcare services from the covered entity that align with the scope of services for which the entity has received grant funding or FQHC Look-Alike status. 

Why Are Eligibility Qualifications so Important?

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.

340B Program Requirements for Maintaining Compliance

Compliance is evaluated at seven points. If a covered entity chooses to register contract pharmacies and/or child sites, items 8 and 9 apply. 

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. 

Duplicate Discounts

The 340B statute restricts duplicate discounts when a covered entity receives a 340B discount on a medication. At the same time, a Medicaid agency secures a rebate from the manufacturer for the same drug. To prevent this, covered entities must have safeguards in place. 

As of January 1, 2025, all covered entities, including hospital-based and non-hospital-based, are obligated to report the TB modifier on Medicare claims. This requirement stems from the Inflation Reduction Act 2022, which established a Part B inflation rebate program to ensure manufacturers provide rebates for certain single-source drugs and biologicals. The TB modifier identifies 340B-purchased drugs, allowing the Centers for Medicare and Medicaid Services (CMS) to track discounts and calculate rebates owed by manufacturers when prices outpace inflation.

Enforcing this requirement aims to lower drug costs and ensure pharmaceutical companies contribute their fair share when prices rise. To maintain compliance and transparency in drug pricing, all healthcare providers in the 340B Drug Pricing Program, including hospitals and community health clinics, must apply the TB modifier when submitting Medicare claims.

Medication Diversion

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

Program Eligibility

Covered entities must recertify their eligibility annually and notify the Office of Pharmacy Affairs whenever their eligibility changes. If their eligibility status changes, they are responsible for immediately notifying OPA and should stop purchasing drugs through the 340B Program. 

Patient Eligibility

Please see Who can receive 340B drugs? above. 

Auditable Records

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

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 must keep their information updated in the database and ensure all details are correctly listed. (Wholesalers will not ship 340B drugs unless there is an exact site/address match in the database.) 

Contract Pharmacy(ies)

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

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:

• Worksheets A and C are 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 facility’s name 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 and the annual recertification process. 

340B Auditing

HRSA can audit the covered entity and drug manufacturers to ensure they align 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 recertification, the Authorizing Official must 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 are January 1st through 15th, April 1st, July 1st, and October 1st. 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. 

It is vital to have all the necessary documents on hand. For example, you will need your latest filed Medicare cost report. If you use 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.

Optimizing Your Pharmacy for 340B 

Contract Pharmacies

Establish clear communication channels, robust compliance mechanisms, and strategic selection of pharmacies to ensure seamless integration and adherence to program requirements, including recent manufacturer restrictions. 

Specialty Pharmacies

Foster strong partnerships with specialty pharmacies experienced in 340B programs, implementing streamlined referral processes, and leveraging technology to enhance medication management and patient care. 

Patient Referral Program

Implement efficient communication protocols between covered entities and referral sites, ensuring timely patient referrals, and providing comprehensive support services to maximize patient access to discounted medications and improve health outcomes. Exploring strategies like optimizing 340B referral prescriptions can enhance savings and patient care.

Entity-Owned Pharmacy

Implement robust inventory management systems, ensuring compliance with 340B program requirements, and leverage data analytics to maximize cost savings and improve patient outcomes. Manufacturer restrictions currently do not apply to the entity-owned pharmacy.

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

The 340B drug pricing program is a widely discussed topic, with advocates and critics voicing strong opinions about its many facets. In the current 340B landscape, manufacturer restrictions have heightened the importance of knowledge and involvement in contract and specialty pharmacies.

Manufacturer Restrictions on Contract Pharmacies

As of February 19, 2024, 37 drug manufacturers have implemented various contract pharmacy restrictions for Covered Entities within the 340B Pricing Program. These restrictions require prescription information to be submitted to a third party for verification, significantly increasing the workload for hospitals and 340B staff. 

Faced with these restrictions, hospitals are exploring avenues to offset the loss and considering the advantages of having an entity-owned pharmacy, as manufacturer restrictions currently do not apply (though this may change). Additionally, the referral program presents an opportunity to mitigate the impact of manufacturer restrictions.

The growing number of manufacturer restrictions and evolving legislation continue to threaten the 340B drug pricing program. Understanding these 340B threats and their implication is crucial for hospitals looking to safeguard their savings and sustain patient care services.  

State Legislation Protecting 340B Contract Pharmacies

Several states have taken legislative action to protect 340B contract pharmacies. For example, laws passed in Louisiana and Arkansas have led to more than a dozen manufacturers lifting contract pharmacy restrictions, and other states are following suit. With states taking the lead, model legislation is shaping the future of 340B protections at the state level.

Multiple legislative efforts are underway at the federal level that could tremendously affect the program. In the meantime, 340B is still helping vulnerable communities access quality health care.

Speak with one of our experts to learn about the latest changes and how they might impact your hospital pharmacy.