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Managing a Successful 340B Discount Program

Most Americans are not aware of a little-known drug pricing program called the 340B Drug Discount Program (340B). The 340B program was created by the federal government in 1992 under Section 602 of the Veterans Health Care Act. However, its popularity only surged within the last five years when hospitals were required to register their offsite facilities which were using 340B drugs. Since its enactment in 1992, the 340B program has been expanded by Congress through various other laws which clarify or broaden the law, including guidance that allows hospitals and clinics to contract with outside pharmacies if they do not have one in-house. The 340B program is managed by the Health and Resources and Services Administration (HRSA).

What Is the 340B Program?

The 340B program enables government-supported hospitals and clinics that serve low-income populations to buy outpatient drugs at significantly reduced prices. Essentially, under the 340B program drug manufacturers are required to sell drugs to qualified hospitals and clinics at Medicaid-supported prices. The goal is to ensure that low-income individuals have access to affordable medications.

To participate in the program, hospitals and clinics must be eligible, known as covered entities, which includes federally qualified health centers, non-profits or non-public and enrolled clinics or offsite facilities. The cost saving benefits to the covered entities from the difference between the reduced costs and the full reimbursement of the costs of the drugs enables covered entities to further stretch their resources provided by the federal government.  Patients from Medicare and private patients of participating covered entities can also be the beneficiaries of the reduced price drugs.

Covered entities must meet HRSA 5 basic program requirements to:

  • Keep an accurate 340B database information;
  • Ensure annual recertification;
  • Prevent diversion to ineligible patients;
  • Prevent duplicate discounts; and
  • Prepare program audits.

Since the 340B implementation, HRSA has conducted several audits which resulted in numerous findings and therefore, required corrective actions plans by covered entities. Some of the most common findings were:

  • Drugs being dispensed to ineligible individuals. The 340B law prohibits the resale of drugs purchased under its pricing system to anyone other than patients of the covered entity facility. The 1996 HRSA patient definition guidelines establishes a test that individuals must meet to be eligible to receive 340B-priced drugs.
  • Inadequate controls over storage and replenishment.
  • Adequate controls were not in place to prevent duplicate discounts. 340B drugs should not be subjected to Medicaid rebate. The “duplicate discount prohibition” rule prohibits covered entities from using 340B discounted drugs for Medicaid drugs that are subject to rebate, unless the covered entities comply with other requirements.
  • Inaccurate or inconsistent database information and records, including but not limited to, duplicate discounts, incorrect data entries, unapproved authorizing officials, prescriptions written at ineligible sites and inaccurate shipping information.
  • Written policies and procedures which were not sufficient or not available.

Staying in Compliance

Covered entities face multiple challenges to stay in compliance with the 340B program. Hiring an employee exclusively for the purpose of overseeing the 340B program can prevent instances of noncompliance by focusing on detailed internal controls. By having 340B personnel, the effort should be on best practices and ensuring that the covered entities meet the designated compliance requirements.  Covered entities should be prepared for an annual audit through guidance and educational opportunities provided by HRSA and other 340B organizations, such as the Office of Pharmacy website, Federal Register notices and current program guidelines.

Covered entities should continually consider ways to strengthen compliance requirements by periodically checking the HRSA website for updates and consider the following tips:

  • Covered entities should have written 340B policies and procedures which include oversight for any contracted pharmacy’s compliance/arrangements. 
  • Ensure that prescribers are contracted or employed by the covered entities.
  • Be aware that not all locations owned by the covered entities are eligible to participate in the program.
  • Ensure that all documentation related to 340B is correct, including Medicaid and 340B identification numbers, approved authorizing officials, correct data entry for primary contact and billing addresses, to name a few.
  • Perform routine self-audit.
  • Review split billing to prevent duplicate discount or rebate.

For more information, contact Marva Flanagan or your ORBA advisor at 312.670.7444. Visit to learn more about our Not-For-Profit Group.

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