Section 340B of the Public Health Service Act implements a special drug discount program whereby pharmaceutical manufacturers who sell covered outpatient drugs are held to a certain statutory formula on price for covered entities. The 2005 Deficit Reduction Act (DRA) added certain qualifying children's hospitals to the list of entities that are eligible to receive drug discounts under the federal 340B Drug Discount Program. On September 1, 2009, the Health Resources and Services Administration (HRSA) published its final guidelines regarding the addition of children's hospitals, more than four years later, and two years following publication of the proposed guidelines. The regulations include the process for registration of children's hospitals in the 340B program and the obligation of manufacturers to provide the statutorily mandated discount to those children's hospitals.

While there were comments to the HRSA that questioned Congress' intent to allow children's hospitals to participate as covered entities, in the final rule HRSA definitively concludes that children's hospitals were intended for inclusion in the DRA and also that the current Pharmaceutical Pricing Agreements already are broad enough to cover children's hospitals. The regulations clarify that a Medicaid disproportionate percentage would suffice to prove qualification and also provide guidance regarding the application of retroactive discounts under the 340B program. Children's hospitals must register and have until September 1, 2010, to complete their registration on the 340B Covered Entity Database.

To participate, a children's hospital must first certify (1) that it qualifies under the law as a children's hospital, as defined in the Medicare Act by having been assigned a Medicare provider number identifying the hospital as a children's hospital (denoted specifically by holding a 3300 Medicare provider number); (2) that it will abide by all the standard compliance requirements for a "covered entity" under the law; and (3) that the hospital is either owned or operated by a unit of state or local government or is a public or private non-profit corporation. Additionally, the hospital must show that it would qualify for Medicare DSH or had a disproportionate share adjustment percentage greater than 11.75 percent under Medicare DSH regulations. Certifications include specific documentation requirements, including a certification that the hospital will not participate in a group purchasing organization effective with participation in the 340B drug database.

As noted above, a children's hospital may be eligible for discounts retroactively, as long as it has satisfied the minimum requirements for inclusion historically. Retroactive discounts may be conditioned upon the following: (1) the children's hospital must be listed in the 340B database within one year of the final rule; (2) a request in writing is made to each manufacturer within 30 days of eligibility; (3) covered outpatient drugs must have been purchased on or after February 8, 2008; (4) no Medicaid rebates should have been generated by the drugs for which retroactive rebate is sought; (5) the covered outpatient drugs may not have been sold or transferred to a person who was not a patient; and (6) the drugs must have been purchased on or after the date on which the children's hospital satisfied all the requirements for participation in the 340B program.