340B Basics

Welcome to the basics of the 340B Program

What is 340B: Section 340B of the Public Health Services Act was created under Section 602 of the Veterans Health Care Act of 1992. Section 340B requires manufacturers participating in the Medicaid program to enter into a pharmaceutical pricing agreement with the United States Department of Health and Human Services (HHS). Under such an agreement, individual manufacturers agree to provide discounted prices to certain defined “covered entities” for covered outpatient drugs. These “covered entities” typically serve more vulnerable patient populations.

By enacting Section 340B in 1992, Congress intended to remedy a situation created by the earlier enactment of the Medicaid rebate program in 1990. More particularly, as a result of the 1990 Medicaid rebate program, drug manufacturers were required to enter into rebate agreements with HHS as a precondition for Medicaid covering their drugs. Pursuant to these agreements, Medicaid could (and still can in certain situations) seek rebates from manufacturers for drugs they have covered (provided reimbursement for). These “back-end” drug rebate discounts, however, were based in part on the manufacturers’ “best prices” to non-Medicaid providers for these drugs. As a result, the lower a manufacturer’s best price for a particular drug, the higher the Medicaid rebate for that drug would be. Obviously, this left little incentive for manufacturers to offer low “best prices”. Not surprisingly, many manufacturers began raising their “best prices”, resulting in increased government spending for drugs purchased by other non-Medicaid government-supported providers. This seemingly undermined the benefits from the drug rebates enjoyed by Medicaid. Congress therefore enacted Section 340B in 1992, thus allowing the “front-end” discounted outpatient drug prices to defined “covered entities.”

What does 340B do?

A good place for additional information is the SNHPA Website.

18 Replies to “340B Basics”

  1. Hi Jeanne,
    My apologies for the delay. We are transferring this blog info to our main website at turnkeyrxsol.com/blog. The answer is that if the original prescription qualified, then the refills qualify. The covered entity retains responsibility for care for that prescription and the patient.

  2. Rob,

    We have a 340b pharmacy at our clinic and we are following the rules for patients my question is if i have a patient who is getting 340b medications at our clinic and they are seen regularly can we put refills on those medications or do we have to see them each time and write a new rx…this is mostly for people with chronic medical conditions

  3. Hi Doris,
    This one is tricky (and my apologies for the late reply). The key is: Where is the visit? If the visit is documented and part of the qualified clinic, then it likely can qualify. If the visit is at the LTC and they are contracting with the provider for services, then it likely will not qualify. As with real estate, the key is: Location, Location, Location!

  4. Hi,
    Is there a way the Long Term Care medical director can write a prescription for the resident at the nursing home and it be filled with 340B product? The Medical director is billing his professional fee through a qualified outpatient clinic…thanks

  5. Hi Dennis,
    Great question, and a little tricky. In general, when this is taught at 340B University, it is considered a negative versus a positive of contract pharmacy agreements. Allowed, however, is an interesting word. There isn’t technically a legal issue with it at this current time, which is why all Walgreen’s arrangements have a percentage. In general though, I think it makes sense to see if a fixed rate (i.e., flat dispensing fee) can work for a contract pharmacy arrangement. Having said that, I have seen situations where it will not work because the pharmacy’s net profit currently is high and for the high cost prescriptions going through the contract pharmacy process, the net result is unfavorable for the retail pharmacy. In these cases, as you increase the dispensing fee to compensate, you chase your tail. This happens because the higher dispensing fee starts to exclude lower cost drugs, so the only scripts in the mix are high cost scripts that already have high margins. In these cases, we have seen a smaller flat fee with a percentage of prescription total may create the win-win situation we try to seek in a contract pharmacy arrangement. In the end, contract pharmacy requires a lot of management and compliance resources, it is not a plug and play program that should entered into lightly. I hope that was not too long winded, and that it helped. Aloha, -Rob

  6. They can get up to the amount that was prescribed. The limiting factor is most often the insurance being used to help pay for the medication. PBMs and MCOs often limit prescriptions to 30-day fills for acute medications and 90-day fills for chronic medications going through a mail order process. For 340B, there is not 30-day or 90-day limit, it matters on what was filled and if it was qualified. I hope that helps. Thank you,


  7. What is your take on contracted pharmacy agreements? Are 340B entities allow to share a percentage of the 340B discount with the contracted pharmacy or must the agreement be for professional fee only?

  8. Are patients only allowed a 30 day supply of medication at a time or can they get a 90 day supply?

  9. Hi Terri,
    The 340B price is for the covered entity (i.e., the hospital or clinic). If the patient receives the prescription from a qualified area of the covered entity (and meets all criteria of patient definition), then the prescription is eligible for 340B recapture by the covered entity. The main exception to this is Medicaid for contract pharmacy. I think what you are asking is if the patient can be eligible to receive a prescription price discount for their prescription when their copay is too high. This is the interesting part, the use of savings in the 340B program for patient support is up to the covered entity. If you are federally funded, you do have some rules you need to follow regarding patient assistance (this applies to community health centers and other clinic types, and some CAH hospitals). Also, payors (e.g., 3rd party insurance and CMS) require that patients cover their copays when their insurance is billed. So, as long as the patient in question is not a Medicaid insured patient, then the patient could be provided financial assistance (as long as you are not a covered entity type that requires financial threshold criteria as mentioned previously). However, you could not simply cover their co-pay. You would need to either run their insurance and let them pay their co-pay or create an alternative mechanism of assistance. For instance, I had a patient in my diabetes clinic that had a $500 copay on his 10 Novolog vials/month. He was insured by a private third party. He was struggling to make his co-pay and was rationing his insulin. We decided to just cover the cost of the insulin and give him a $5 co-pay. We did not run insurance at all, we just provided it for $5 (all other cost was subsidized by our 340B savings). For many who might read this, you may think . . . gosh, it would be nice if the third party insurance could pay what they will pay and we could just forgive the rest since it may be enough to cover the drug cost, but in my experience, this is considered insurance fraud and should not be done. I wish we could do that, but with the current insurance system we have, it is not currently okay to do this.

  10. i have a question, if a patient has private insurance but there copay is too high (lantus/Levemire) come to mind, is that patient still eligible for the 340b price?

  11. Hi Eric, this is a great question. As you most likely already know, there is not a lot of clear information on this. At the 340B Winter Conference there was some debate on this. What we do at our hospital is exclude all medications given on an encounter that has an inpatient admit status. It is a risk versus benefit example, and I would rather not take on the risk and have to prove in an audit that a mixed status patient received the right drugs at the right time. It is also possible that a definition of an outpatient in the future could exclude patients who are inpatient for any part of the encounter. So, back to your question. If you are prospectively purchasing (separate inventory), then you would need to repurchase the Humira at your inpatient contract pricing to replace the stock used on a 340B patient. You would then have your 340B drug back on the shelf for the next eligible 340B patient and all is copacetic in the 340B world. To be fair, there are some covered entities that actually look to see when a medication was given and will count all meds given prior to inpatient admit as 340B. The risk versus benefit does not seem worth it to me, but some covered entities are trying to maximize savings anywhere they can. For us, we will minimize our risk and be conservative. This topic was also discussed in an article a couple of months ago, you can read about it here.

  12. I am curious how to handle a scenario where a patient is admitted as observation and received 340b medications but then admit status is changed to inpatient. We ordered Humira for the patient and they received one dose under observation but then the rules of the game changed….any suggested actions for how to handle?

  13. Hi Kerry, I would be very careful about using any 340B drug purchases outside of the designated covered entity, in this case the “Family Planning Project.” Unless the family planning project is the clinic administering the medication. This could be diversion and put the clinic at risk of losing its 340B status. The issue about Medicaid or private pay is a separate issue (although irrelevant if you aren’t suppose to be using for this group anyway) related to whether or not you placed your covered entity on the HRSA exclusion file. If you have, then you can go ahead and use 340B drug for Medicaid patients according to the process agreed upon between the covered entity and Medicaid. In some cases, there is no process; however, we have been asked to work with our Medicaid departments to create win-win situations. If you have not placed your covered entity on the exclusion file, then you need to carve out Medicaid patients and treat them as regular patients in order to prevent duplicate discounts (Medicaid going after rebates on medications you already purchased at 340B price).

  14. Harvey – I am new to the accounting side of Public Health. Our county Public Health uses the 340B Prime Vendor program to purchase contraceptives and several drugs in conjunction with our State Title X Family Planning program. My predecessor used the 340B program several times to purchase vaccines for patients in our immunization clinic. Is this permissible? We are not a FQHC. Some of the patients receiving vaccine were Medicaid eligible, others were private pay or had health insurance. Thanks for your help!

  15. Harvey,
    Thanks. That was an error. I will get it edited. The Veterans Health Care Act of 1992 (where the 340B legislation comes from) was created at a time when Medicare did not cover outpatient prescriptions drugs (Medicare Part D came out in 2006). I wonder if they would have found a way to tie Medicare Part D coverage in to this as well if it had been around.

  16. Rob,

    Just discovered your blog – I’m a consultant specializing in 340B.
    I have a comment regarding your response to Gretchen’s email in which you state that any drug that wants to be covered by Medicare must provide a 340B price. I’m not aware of any such restriction; however, if a drug is to covered under Medicaid, than a 340B price must be provided

  17. Hi Gretchen, just about all of them are. In fact, insulins and the newer oral agents provide a good cost savings margin to covered entities. In fact, my diabetes clinic is trying to be shifted to my companies medical group. This would remove it from my hospital’s cost report and therefore make it non-340b eligible. We have been able to keep it under the hospital’s umbrella because of the 340b benefit. Back to your original question, any drug that wants to be covered by Mediaid must provide a 340B price. That is why most drugs have a 340b price. There are rare cases of specialty injectables not having a 340b price.

  18. I am wondering what drugs are available in this program for those with diabetes, including the newer drugs and which insulins (rapid-acting, Lantus, etc.) are available, DDP-IV inhibitors, Exenatide, etc.

    Thank you,
    Gretchen Mottice

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