What Is the 340B Program—and Which Entities Are Covered?

The 340B program, established under federal law in 1992, enables eligible healthcare providers and programs, known as covered entities, to purchase outpatient drugs at discounted rates. According to the congressional report that accompanied the legislation, the program’s purpose is to help covered entities “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

The following entities are eligible to participate in the 340B program:

  • Disproportionate Share Hospitals (DSHs), cancer hospitals and children’s hospitals with a disproportionate share adjustment percentage greater than 11.75%
  • Sole community hospitals and rural referral centers with a disproportionate share adjustment percentage greater than 8%
  • Critical access hospitals
  • Federally-qualified health centers (FQHCs) and FQHC look-alikes
  • Family planning projects funded under Section 1001 of the Public Health Services Act
  • Ryan White clinics
  • State AIDS drug assistance programs
  • Black lung clinics
  • Hemophilia treatment centers
  • Native Hawaiian health centers and urban Indian organizations
  • Federally funded sexually transmitted disease and tuberculosis clinics

Which Patients Are Eligible for 340B Drugs?

In 1996, the Office of Pharmacy Affairs—the agency within the Health Resources and Services Administration (HRSA) that administers the 340B program—issued guidelines, published in the Federal Register, that set forth three requirements for patients to be eligible for 340B drugs:

  1. The covered entity must maintain records of the patient’s healthcare;
  2. The clinician providing services to the patient must be an employee of the covered entity or provide healthcare under another arrangement so that the responsibility for care remains with the covered entity; and
  3. Other than for hospitals, the services must be consistent with the services for which the covered entity receives the grant funding that qualifies it for covered entity status.

The guidelines also make it clear that individuals cannot qualify as patients of a covered entity for 340B purposes if the only healthcare service they receive from the covered entity is the dispensing of drugs for self-administration or administration in a home setting.

In 2007 and again in 2015, the Office of Pharmacy Affairs issued guidance that would have revised and narrowed the definition of 340B-eligible patients, but the guidance was never finalized, and the original definition remains in place.

How Can Covered Entities Dispense 340B Drugs?

Covered entities can dispense 340B drugs through in-house pharmacies, or through contract pharmacy arrangements with one or more outside pharmacies. Under a contract pharmacy arrangement, a covered entity buys drugs at 340B prices and ships them to the contract pharmacy, and the contract pharmacy dispenses the drugs to the covered entity’s patients.

Initially, the Office of Pharmacy Affairs restricted contract pharmacy arrangements to one contract pharmacy per covered entity. That restriction was later lifted, and covered entities now may contract with multiple contract pharmacies.

Two other significant restrictions apply to covered entities:

  • The Group Purchasing Organization (GPO) exclusion prohibits DSH hospitals, children’s hospitals and cancer hospitals that participate in the 340B program from purchasing outpatient drugs through a GPO.
  • The prohibition on duplicate discounts prohibits a drug from being subject to both a 340B and a Medicaid discount.

The Impact of the Affordable Care Act (ACA)

The Affordable Care Act contained several provisions with implications for the 340B program. Among other things, the ACA:

  • Expanded covered entities to include qualifying children’s hospitals, critical access hospitals, freestanding cancer hospitals, sole community hospitals and rural referral centers; and
  • Exempted orphan drugs from the 340B definition of “covered outpatient drugs,” making them ineligible for 340B discounts.

Current 340B Issues

Effective as of January 1, 2018, Medicare Part B reimbursement for 340B drugs (other than pass-through drugs and vaccines) was reduced from average sales price (ASP) plus 6% to ASP minus 22.5%. Children’s hospitals, freestanding cancer clinics and sole community hospitals were exempted from the reduction. The American Hospital Association, the Association of Academic Medical Centers, America’s Essential Hospitals and several hospitals brought a lawsuit against the Department of Health and Human Services (HHS) in November, arguing that the payment reduction violates the Social Security Act. On December 29 (after the date of the webinar), a federal judge allowed the cuts to take effect, but that decision has since been appealed.

In addition, there are two pending 340B regulations:

  • The Civil Monetary Penalties Rule would impose civil monetary penalties on pharmaceutical manufacturers that intentionally overcharge covered entities for 340B drugs. The final rule was published January 5, 2017, but its effective date has been repeatedly delayed, most recently to July 1, 2018.
  • The Administrative Dispute Resolution Rule (proposed rule published August 12, 2016, and not yet finalized) would establish an administrative dispute resolution process to resolve claims by covered entities that have been overcharged for 340B drugs.

Looking Ahead

What can we expect to see for the 340B program as we look to the future? The program has been caught up in the larger debate around prescription drug prices, and policymakers have renewed their focus on 340B, particularly for DSH hospitals. Most recently, on January 10, 2018, the House Energy and Commerce Committee released a 79-page report that provides recommendations for how the program could be improved.

Whether any of these recommendations will result in changes to the program is an open question, particularly given the Trump administration’s restrictions on issuing additional regulations. However, any proposed changes will be almost certain to draw strong reactions from both the powerful pharmaceutical company and hospital lobbying organizations.