To understand the genesis of the 340B program, one must begin in 1990 when Congress created the Medicaid rebate program to lower the cost of pharmaceuticals reimbursed by state Medicaid agencies.  The Medicaid rebate program requires drug companies to enter into a rebate agreement with the Secretary of the Department of Health and Human Services (HHS) as a precondition for coverage of their drugs by Medicaid.  The rebate agreement specifies that, for each brand name outpatient drug covered under Medicaid, the manufacturer of the drug must pay a rebate to Medicaid based in part on the manufacturer’s “best price” for that drug.  As a result of the Medicaid rebate law, many pharmaceutical companies had a disincentive to continue giving deep discounts on drugs because they would have to pay larger rebates to Medicaid if they gave deeper discounts in the non-Medicaid market (establishing even better “best prices”).  When manufacturers began raising their prices, the Medicaid savings achieved through the rebate program were offset by increased government spending on drugs purchased by other federal- and state-supported providers. 

Who is eligible to participate in the 340B program?

The definition of "covered entities" includes six categories of hospitals: disproportionate share hospitals (DSHs), children’s hospitals and cancer hospitals exempt from the Medicare prospective payment system, sole community hospitals, rural referral centers, and critical access hospitals (CAHs).  Hospitals in each of the categories must be (1) non-profit, (2) be owned or operated by or under contract with state or local governments and, (3) with the exception of CAHs, meet payer-mix criteria related to the Medicare DSH program.  There are also eleven categories of non-hospital covered entities that are eligible based on receiving federal funding.  They include federally qualified health centers (FQHCs), FQHC “look-alikes”, state-operated AIDS drug assistance programs, the Ryan White CARE Act Part A, Part B and Part C programs, tuberculosis, black lung, family planning and sexually transmitted disease clinics, hemophilia treatment centers, public  housing primary care clinics, homeless clinics, Urban Indian clinics, and Native Hawaiian health centers.

Over 16,000 participating covered entity sites and more than 900 pharmaceutical companies participate in the program.

Who administers the 340B program?

The Office of Pharmacy Affairs (OPA), which is located within the Health Resources and Services Administration (HRSA) within HHS, administers the program.  HRSA and OPA are located in Rockville, Maryland and are responsible for interpreting and implementing Section 340B.  You may contact OPA through its government contractor, the Pharmacy Services Support Center (PSSC), at 1-800-628-6297, (202) 429-7518, or pssc@aphanet.org, or via contacts links on the OPA website at http://www.hrsa.gov/opa.  The OPA office e-mail address is opastaff@hrsa.gov.

What is the Pharmacy Services Support Center (PSSC)?

PSSC is a federal contractor that HRSA funds to provide guidance and technical assistance to 340B covered entities and to enhance the staffing resources available to OPA.  PSSC is a non-profit organization based at the American Pharmacists Association (APhA).  PSSC’s website is located at http://pssc.aphanet.org.

How does the Program work?

Facilities that believe they meet the criteria of a “covered entity” can apply to participate in the 340B program by submitting their applications at least one month in advance of the beginning of the next calendar quarter, which is when OPA updates the list of covered entities on its website.  Facilities are enrolled in the program and are eligible for 340B discounts as soon as their name and other requested information are posted on the OPA website and their listed start dates have passed.  Once admitted into the program, covered entities are entitled to receive discounts on all covered outpatient drugs, regardless of the patient’s payer status and whether the drug is intended for self-administration or administration by a clinician.  The 340B discount is the average manufacturer price (AMP) reduced by a minimum rebate percentage of 23.1 percent for most brand name prescription drugs, 17.1 percent for brand name pediatric drugs and clotting factor, and 13 percent for generic and over-the-counter drugs.  Manufacturers must offer even greater discounts on brand name drugs if the manufacturer’s best price for a drug is lower than AMP minus 23.1 percent for that drug and/or the price of the drug has increased faster than the rate of inflation.  (This is also true for innovator, multi-source drugs, i.e., brand name drugs that have generic competition.) In addition, covered entities are free to negotiate discounts that are lower than the maximum allowable statutory price.  The discounted prices are typically available through a covered entity’s wholesaler unless the manufacturer requires that its drugs (both 340B and non-340B) be purchased direct.

How do covered entities obtain discounts?

Upon enrollment, a covered entity should contact its wholesaler to set up its 340B account and to request a 340B price list.  The entity also may request a 340B pricing file from a manufacturer.  Manufacturers should check the OPA website each quarter to identify the providers that are participating in the program. The manufacturer may not charge more than the 340B ceiling price to those entities regardless of whether the covered entity purchases pharmaceuticals through a wholesaler or directly from the manufacturer.  If a covered entity suspects that it is not receiving the 340B price for a given outpatient drug, it should immediately notify its wholesaler, the manufacturer, and/or OPA.  In many cases, the absence of a 340B price is the result of human error and is resolved when the mistake is identified and, if necessary, brought to OPA’s attention.  HRSA also has implemented a provision of Section 340B mandating the creation of a Prime Vendor Program by entering into an agreement with Apexus to help with negotiating discounts below the mandatory 340B ceiling price.  A covered entity does not have to join the Prime Vendor Program in order to participate in the 340B program and may negotiate subceiling discounts on its own.  However, because the Prime Vendor Program can negotiate prices on behalf of a large number of 340B purchasers, it has been able to negotiate favorable prices and develop a national distribution system that may not be possible for some covered entities to obtain individually.  To learn more about the Prime Vendor Program, go to http://www.340Bpvp.com.

To whom may covered entities dispense discounted drugs?

Section 340B prohibits the resale or transfer of discounted outpatient drugs to anyone other than a patient of the covered entity.  HRSA has defined a covered entity “patient” through a Federal Register notice available on OPA’s website and through informal guidance.  The current patient definition guidelines establish a three-part test that individuals must meet to be eligible to receive 340B-priced drugs.  The penalty for failing to comply with the program’s anti-diversion provision is forfeiture of the discounts back to the manufacturer.  Where the violation is knowing and intentional, covered entities may be required to pay interest on the discounts that they refund.  In addition, if diversion by an individual is intentional, he or she may be criminally liable under the Prescription Drug Marketing Act.  Finally, if the violation is systematic and egregious as well as knowing and intentional, a covered entity may be disqualified from participation in the program for a reasonable time, to be determined by HRSA.  Manufacturers have the right to audit the records of covered entities to protect against diversion.  HRSA published proposed changes to the 340B definition of “patient” in January 2007; however, those changes have yet to be adopted.  HRSA has indicated it plans to withdraw the 2007 proposed definition and replace it with a new proposed definition.

Are there billing restrictions?

There are no billing restrictions applicable to drugs dispensed to non-Medicaid patients.  However, with respect to drugs dispensed or administered to Medicaid recipients, the law says that a drug purchased under 340B cannot be subject to both a 340B discount and a Medicaid rebate.  HRSA directs covered entities to follow state guidance when billing 340B drugs.  In most states, participating covered entities may not bill Medicaid for drugs dispensed at retail for more than acquisition cost (plus a dispensing fee) for covered outpatient drugs purchased with 340B discounts.  This policy does not apply if (a) the drug is dispensed to a Medicaid recipient enrolled in a capitated managed care plan and the drug is paid for by Medicaid as part of the capitation rate, (b) the drug is reimbursed by Medicaid as part of an all-inclusive rate or is otherwise paid for as part of a bundled rate, (c) the state Medicaid agency has established a different billing and reimbursement arrangement for 340B drugs, or (d) the entity elects to purchase its Medicaid outpatient drugs outside the 340B program (often referred to as the Medicaid “carve-out”) and the state permits the carve-out.  California, for instance, does not.  With respect to non-retail covered outpatient drugs, the above policies generally still apply, but providers should contact their state Medicaid agency if they have any questions.  This is true whether the non-retail drug is administered or dispensed by a physician or other health care provider.

What if a covered entity facility lacks an “in-house” pharmacy?

HRSA has developed guidelines to allow such facilities to contract with one or more outside pharmacies to act as a dispensing agent.  Under these guidelines, the covered entity is required to purchase the pharmaceuticals, and the contractor provides some or all pharmacy services.  Covered entities with contract pharmacies should use a "ship to-bill to" procedure in which the covered entities purchase the drugs, and manufacturers and wholesalers bill the covered entities but ship the drugs directly to the contract pharmacy.  A contractor must provide the covered entity quarterly financial statements, a detailed status report of collections, and a summary of receiving and dispensing records.  It must maintain those records as long as is required under federal law (generally 10 years).  The contractor also must establish and maintain a tracking system to prevent diversion of drugs to individuals who are not patients of the covered entity.  Covered entities are expected to have an independent audit of the contract pharmacy performed at least annually, to monitor pharmacy compliance the rest of the year, and to self-report any instance of noncompliance to HRSA.

How much do Section 340B participants save in the program?

Pharmaceutical prices available under Section 340B are significantly lower than both retail and wholesale prices.  340B prices for brand name drugs are, on average, 51 percent of average wholesale prices, according to a report released by the Congressional Budget Office.  Another government study found 340B prices to be 27 percent lower than prices available to group purchasing organizations.  Note that these estimates were determined before manufacturers were required to adjust their AMP and minimum rebate percentage calculations as a result of health reform legislation in 2010.

How do you receive the latest information on the Program?

OPA disseminates information through its website at http://www.hrsa.gov/opa and the PSSC website at http://pssc.aphanet.org to program participants. The OPA website includes the names of participating covered entities and manufacturers, Federal Register notices and current program guidelines, and other 340B program-related information.  Other helpful information is available at the Safety Net Hospitals for Pharmaceutical Access’s website located at http://www.snhpa.org and the 340B Prime Vendor website located at http://www.340Bpvp.com.  In addition, Safety Net Hospitals for Pharmaceutical Access publishes a real-time news service on the 340B program called the Drug Discount Monitor, which can be found online at http://www.drugdiscountmonitor.com.

For questions, please contact SNHPA’s Associate Counsel, Greg Doggett, at greg.doggett@snhpa.org or 202-552-5859, or Jeff Davis, at jeff.davis@snhpa.org or 202-552-5867.