HRSA 340B Program, in a NutshellWhat is 340B?

The Health Resources and Services Administration (HRSA) 340B Drug Pricing Program allows for eligible health care organizations and covered entities to purchase outpatient drugs at drastically reduced prices from drug manufacturers.

The intent of the 340B Program is to provide funding relief for covered entities serving under-served populations and more comprehensive services for eligible patients.

Program Overview

The 340B Program is administered and overseen by HRSA, a Federal Agency within the U.S. Department of Health and Human Services.

The statute defines which organizations are eligible to participate in the program. Covered entities are required to register and enroll in the 340B Program and then comply with all program requirements.

Each covered entity receives a 340B Program identification number which manufacturers use to confirm 340B enrollment before selling discounted drugs to the organization.

340B Eligibility

Eligible Organizations

Covered entities include non-profit health care organizations with certain federal designation or non-profit health care organizations which receive funding from specific federal programs; for example, Federally-Qualified Health Centers or look-alikes, Native Hawaiian Health Centers, Tribal/Urban Indian Health Centers, Ryan White HIV/AIDS Program Grantees, Children’s Hospitals, Critical Access Hospitals, Disproportionate Share Hospitals, Free Standing Cancer Hospitals, Rural Referral Centers, Sole Community Hospitals, Black Lung Clinics, Comprehensive Hemophilia Diagnostic Treatment Centers, Title X Family Planning Clinics, Sexually Transmitted Disease Clinics, and Tuberculosis Clinics. Covered entities may register and be enrolled to purchase discounted outpatients drugs under the 340B Program. For a full list of eligible organizations and covered entities, please visit the HRSA website at:

Eligible Patients

Patients who receive health care services, other than the dispensing of drugs, from the 340B covered entity are eligible to receive discounted drugs under the 340B pricing program. Patients who only receive a dispensing of drugs for self-administration in the home setting are not considered a patient of the covered entity and not eligible to receive 340B drug pricing. An exception is for patients of State-operated or State-funded AIDS drug purchasing assistance programs that receive Federal Ryan White funding. These patients are eligible for 340B pricing, even though the covered entity does not provide services along with the dispensing of drugs.

Eligible Drugs

The 340B Program covers the following outpatient drugs:  FDA-approved prescription drugs, Over-the-Counter drugs prescribed by prescription, biological products that require a prescription for dispensing (not including vaccines), and FDA-approved insulin.

340B Contract Pharmacies

The 340B Program covered entities may contract with a pharmacy or pharmacies to provide services to the covered entity’s patients, including the service of dispensing the entity-owned 340B drugs. To engage in a contract pharmacy arrangement, the entity and pharmacy (or pharmacies) must have a written contract that aligns with the compliance elements listed in HRSA guidance, and must list the contract pharmacy on the HRSA 340B Database during a quarterly registration period. Typically, a bill-to (entity)/ship-to (pharmacy) arrangement is used.


Under the 340B Program, drug manufacturers are restricted to a ceiling price or maximum price they charge covered entities for covered outpatient drugs. HRSA calculates the ceiling price as the difference between the drug’s average manufacturer price (AMP) and the drugs unit rebate amount (URA). The URA is calculated by a statutory formula based on the formula used to calculate Medicaid drug rebates, as specified in the Social Security Act, Section 1927.

The algorithm for the ceiling price is as follows: Ceiling Price = (AMP – URA) x drug package size.

The AMP is the average price paid to a manufacturer by both drug wholesalers who in turn distribute to retail pharmacies, and retail pharmacies themselves who purchase directly from the manufacturer. AMP does not include prompt-pay discounts, bona fide services paid by manufacturers to wholesalers or retail pharmacies, direct sales to federal purchasers, and sales to 340B covered entities. Mandatory reporting of AMPs to the Secretary by manufacturers participating in Medicaid are kept confidential.

The URA varies depending on the type of drug. For single-source and innovator multiple-source drugs, the algorithm for the URA is the greater of (AMP – the “best price”) or (AMP x 23.1%). The “best price” is reported to the Secretary by the manufacturer and is kept confidential. An inflation rebate is applied in circumstances where the AMP rate of growth is faster than the rate of inflation.

For non-innovator multiple-source drugs, the URA equals AMP x 13 %.

For clotting factors or drugs exclusively used in pediatrics, the URA is the greater of (AMP – the “best price”) or (AMP x 17.1%).

Qualifying Hospitals

Hospitals who qualify under the 340B Drug Pricing Program include Children’s Hospitals, Critical Access Hospitals, Disproportionate Share Hospitals, Free Standing Cancer Hospitals, and Sole Community Hospitals.

Children’s Hospitals include non-profit hospitals which serve individuals under 19 years old and have a CMS-issued 3300 Series Medicare Provider Number to designate them as Medicare certified children’s hospitals. Children’s hospitals must meet certain requirements, including a DSH adjustment percentage > 11.75% and compliance with the GPO Prohibition, to be eligible to participate in the 340B Program.  Please see the following link for more details:

A Critical Access Hospital (CAH) is a hospital certified to receive cost-based reimbursement from Medicare. This reimbursement is intended to improve the hospital’s financial performance, thereby reducing hospital closures. CAHs are certified under different, more flexible Medicare conditions of participation (CoP) than that of acute care hospitals, and must meet certain criteria to be designated as CAHs. For the purposes of 340B, CAHs must meet specific 340B eligibility criteria, including abiding by the orphan drug prohibition. CAHs are not subject to the 340B Program’s Group Purchasing Organization (GPO) Prohibition.  Please see the following link for more details:

Disproportionate Share Hospitals serve a significantly disproportionate number of low-income patients; as such, they receive adjustment payments to provide additional help. The primary method of qualification is based on the sum of the percentage of Medicare inpatient days and the percentage of total patient days attributable to patients eligible for Medicaid but not eligible for Medicare Part A. Among other requirements, DSHs must have a DSH adjustment percent> 11.75% to be 340B eligible. Please see the following link for more details:

A free standing cancer hospital (CAN) is a non-profit entity that is financially and administratively independent (not a part of a larger institution). CAN hospitals are exempt from Medicare’s prospective payment system, For 340B purposes, A CAN hospital must meet specific eligibility requirements, including a DSH adjustment percentage >11.75%, and compliance with the GPO Prohibition and Orphan Drug Prohibition.  Please see the following link for more details:

A sole community hospital is a hospital paid under the Medicare Acute Care Hospital Inpatient Prospective Payment System (IPPS) is eligible to be classified as an SCH if it meets specific criteria determined by CMS. Typically, these hospitals furnish short-term, acute care; are paid under the Medicare Acute Care Hospital IPPS; are not critical access hospitals (CAH); and are not paid under any other Medicare prospective payment system.  Please see the following link for more details:

Disproportionate Share Hospitals, freestanding cancer hospitals and children’s hospitals are not permitted to participate in a group purchasing organization for outpatient drugs under the 340B Program.


There are five ongoing requirements in order for covered entities to be able to purchase drugs at the 340B price.

  • First, covered entities are required to keep their 340B database information accurate and up to date. This includes registering new outpatient facilities and contract pharmacies as they are added.
  • Second, covered entities are required to recertify their eligibility every year and are required to immediately notify the Office of Pharmacy Affairs when there is a change in their eligibility status and discontinue purchasing drugs under the 340B Program.
  • Third, covered entities are required to prevent duplicate discounts. In other words, manufacturers are prohibited from providing both a discounted 340B price and a Medicaid drug rebate for the same drug. Covered entities are required by 42 USC 256(a)(5)(A)(i) to report how Medicaid drugs are billed on the Medicaid Exclusion File.
  • Fourth, covered entities must prevent diversion to ineligible patients. They are prohibited from reselling or transferrin g 340B drugs to ineligible patients.
  • Fifth, covered entities must maintain records documenting compliance with all 340B Program requirements, in anticipation for program audits. Audits may be performed by either the manufacturer or federal government. Failure to comply with 340B requirements may subject covered entities to liability to manufacturers for refunds and discounts received.

The covered entity has the responsibility of notifying the drug manufacturers that it will purchase outpatient drugs at 340B prices. The wholesaler and manufacturer must then verify the covered entity’s enrollment on the 340B database. After verification, the drugs must be sold at or below the maximum price set by the 340B statute.

Proposed HRSA 340B Guidance

In long-awaited response to harsh Congressional criticism that HRSA’s guidance on key program elements lacked sufficient specificity for participants to self-police or monitor others for compliance, on August 28, 2015, HRSA issued its Proposed 340B Drug Pricing Program Omnibus Guidance (“Proposed Guidance”).

The Proposed Guidance, open for public comment until October 27, 2015, is anything but a half-measure.  Ironically, it’s so detailed that many fear it may hamstring the Program’s application and undermine its broad legislative mandate to stretch “scare” federal resources.

While it does not have the force of law, the Proposed Guidance affects nearly every facet of the current Program, including basic concepts such as individual and organizational eligibility, covered drugs, covered entity and contract pharmacy requirements/arrangements, manufacturer responsibilities, rebates and integrity requirements.  Perhaps the most controversial change is the proposed definition “Patient,” which radically departs from the previous one (a three-part test based on 1996 Guidance) and now requires that the following six conditions be met:

  1. The individual receives a health care service at a facility or clinic site which is registered for the 340B Program and listed on the public 340B database;
  2. The individual receives a health care service provided by a covered entity provider who is either employed by the covered entity or who is an independent contractor for the covered entity, such that the covered entity may bill for services on behalf of the provider;
  3. An individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2);
  4. The individual’s health care is consistent with scope of the Federal grant, project, designation, or contract;
  5. The individual’s drug is ordered or prescribed pursuant to a health care service that is classified as outpatient; and
  6. The individual’s patient records are accessible to the covered entity and demonstrate that the covered entity is responsible for care.

While it is unclear which elements of the Proposed Guidance will remain after the flood of public comment subsides, the breadth of HRSA’s proposal makes it virtually certain that the final version of the is sure to impact current and prospective provider participants in some form or another.

For the latest information about 340B, please contact Nelson Hardiman attorney John A. Mills.