Your Guide to Understanding the 340B Drug Pricing Program

How Does the 340B Program Work?

340B Drug Pricing Program 

The 340B drug pricing program operates as a vital rebate and savings initiative through the federal government, offering a lifeline to qualifying covered entities, such as hospitals and community health centers serving uninsured, under-insured, and low-income patients. 

Through the program, participating covered entities can purchase outpatient drugs directly from the manufacturers at reduced prices below the average wholesale price. These savings help stretch scarce federal resources and expand access to essential medications for vulnerable patient populations.  

The program is governed by the Health Resources and Services Administration (HRSA), and participating entities must comply with program requirements to ensure appropriate use of 340B savings and eligibility for continued participation. 

340B Contract Pharmacy

The 340B contract pharmacy model serves as an extension of the program, broadening its impact by enabling eligible covered entities to partner with retail pharmacies to dispense 340B-discounted medications to their patients. 

Under this arrangement, covered entities designate one or more contract pharmacies to serve as distribution points for 340B drugs. When a prescription is filled at a contract pharmacy for an eligible patient of the covered entity, the pharmacy dispenses the medication at the discounted 340B price. The covered entity then captures the savings generated through the discounted drug pricing, which can be reinvested into supporting patient care initiatives or expanding services. 

It’s worth noting that there are manufacturer restrictions that may impact the distribution and use of 340B drugs through contract pharmacies. Covered entities will need to carefully navigate compliance while maximizing the program’s benefits for their patient populations. 

Have questions? Get answers from our team of experts.


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:

  • It helps qualifying hospitals and providers, serving vulnerable populations stretch their limited resources so that they can provide essential services to their communities. 
  • 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 the 340B section of the Public Health Service Act. 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 hospital’s 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

  • 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 that are 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 acute and chronic illnesses,
  • specialty drugs,
  • orphan drugs,
  • medications used in the prevention or management of specific conditions such as HIV/AIDS, cancer, diabetes, and cardiovascular disease. 

Mixed-use facilities, which may include hospitals, community health centers, 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 reach of the program and facilitate access to affordable medications for underserved populations.


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:

  • The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual’s health care;
  • 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;
  • 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.


340B Program Requirements for Maintaining 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. 

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 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. 

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. 

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. 

Patient Eligibility

Please see Who can receive 340B drugs? above. 

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. 

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.) 

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. 

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 

It is important 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.


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. 

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 alike 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.

Manufacturers are now requesting prescription information to be sent to a third party for verification, resulting in an increased 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.  

There are also multiple pieces of legislation currently in play that are likely to impact the program. In the meantime, 340B is still helping vulnerable communities get access to quality health care.

To learn more about the latest changes and how they might impact your hospital pharmacy, reach out to speak with one of our experts. 



How can you help advocate for the 340B program?

Legislators value the input of their constituents and want to know how policies debated in Washington are impacting the communities they represent. Consider hosting a member(s) of Congress and/or their staff for a tour of your hospital. A visit will give your member of Congress an opportunity to see the importance of your mission and the role 340B plays in fulfilling those commitments.  

How do your 340B savings help your community?

340B bridges gaps in access to specialized services connecting underserved patients and communities with the care they need. It’s important to understand how your program savings are used to meet your mission goals as a safety net hospital. Review your payer mix, operating margin, charity care, bad debt, and underpayment from public programs to get a better idea of the impact 340B can have on your community.

What is an Orphan drug?

An orphan drug is defined by Apexus, as “a drug or biological product to treat a rare disease or condition upon request of a sponsor.” 

How do orphan drugs affect different entity types?

According to HRSA, rural referral centers, sole community hospitals, critical access hospitals and free-standing cancer hospitals must adhere to the orphan drug exclusion. The orphan drug exclusion gives manufacturers the autonomy to decide if they will offer 340B pricing to these covered entity types. All other entity types, such as Disproportionate Share Hospitals, Pediatric Hospitals, etc., are not subject to this exclusion. The orphan drug list is published quarterly and can be found on the HRSA website: Orphan Drugs | HRSA 


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.

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