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The Definitive Guide to 340B

What is 340B?

The 340B Drug Pricing Program was established in 1992 as part of the Public Health Services Act and expanded in 2010 as part of the American Recovery and Reinvestment Act of 2010. The 340B Program provides much-needed relief from high prescription drug costs charged by drug manufacturers. The program requires the drug manufacturers to sell covered outpatient drugs to eligible entities at a discounted price, and the drug manufacturer is required to participate if they want to be included on the Medicaid or Medicare’s covered drug lists.

The 340B program aims to give vulnerable patients access to appropriate healthcare by helping hospitals stretch scarce federal resources and enhance care capabilities. Without the 340B program, many clinics and hospitals would not be able to serve many of the patients they do today.

Who is eligible for the 340B program?

The 340B program is available to specified providers, otherwise known as covered entities, that serve the nation’s most vulnerable patient populations. The definition of a covered entity includes six categories of hospitals and ten categories of non-hospital clinics and other provider-types.

Hospitals must be publicly owned or operated, nonprofit corporations granted government powers, or private, nonprofit hospitals contracting with the government to provide care to patients who don’t qualify for Medicaid or Medicare. This list includes disproportionate share hospitals (DSHs), children’s hospitals and cancer hospitals exempt from Medicare, sole community hospitals, rural referral centers, and critical access hospitals.

Non-hospital covered entities are eligible based on receiving federal funding. The list includes federally qualified health centers (FQHCs), FQHC “look-a-likes,” state-operated AIDS drug assistance programs, the Ryan White Comprehensive AIDS Resources Emergency (CARE) Act clinics and programs, tuberculosis clinics, black lung clinics, Title X family planning clinics, sexually transmitted disease clinics, hemophilia treatment centers, Urban Indian clinics, and Native Hawaiian health centers.

Read the complete list of 340B program eligible organizations and covered entities on the U.S. Health and Resource Services Administration website.

How does the 340B program work?

The Office of Pharmacy Affairs (OPA), a division of HRSA, administers the program. Entities that meet the criteria of a covered entity can apply to participate in the 340B program by completing the online registration process. Once approved, covered entities receive an identification number that allows vendors to verify the organization’s registration before purchasing a covered outpatient drug at a discounted rate. The program limits the cost a drug manufacturer can charge based on the 340B ceiling price. Covered entities may provide medications purchased through the 340B program to all eligible patients, regardless of the patient’s payer status and whether the drug is intended for self-administration or administration by a clinician. However, covered entities can only dispense the 340B program discounted medications based on the 1996 patient definition guidelines.

Billing restrictions exist, and covered entities should review their Medicaid MCO contracts to ensure their 340B billing practices comply with the contracts. In addition, federal law prohibits using 340B for drugs dispensed or administered to Medicaid fee-for-service (FFS) patients and are subject to Medicaid rebates unless the covered entity complies with specific requirements. This program rule, commonly called the “duplicate discount prohibition,” is intended to protect manufacturers from giving a 340B discount and Medicaid FFS rebate for the same drug.

Covered entities are allowed to contract with one or more outside pharmacies to act as a dispensing agent. However, under the HRSA guidelines, the covered entity must purchase the pharmaceuticals, and the contract pharmacy provides some or all the pharmacy services. For more details, access the HRSA’s 340B Drug Pricing Program’s Frequently Asked Questions (FAQ).

What are the 340B program compliance requirements?

The 340B program authorizes HRSA to audit covered entities for compliance purposes within the program and currently conducts an estimated 200 audits per year. Manufacturers are also permitted to audit covered entities for compliance regarding patient definition and the duplicate discount prohibition. However, they must demonstrate reasonable cause and HRSA’s prior approval of an audit work plan.

A covered entity must be recertified yearly and must attest to full compliance with the 340B program, including compliance with contract pharmacies. They must also agree to self-report to HRSA any internal findings or breaches in 340B program requirements.

Manufacturers are subject to audits by HRSA to ensure compliance. However, covered entities have no authority to audit manufacturers, and there is no annual recertification requirement for the manufacturers.

The penalty for failing to comply with the program’s diversion or duplicate discount provisions is repayment of the discounts back to the manufacturer. If the diversion violation is knowing and intentional, covered entities may be required to pay interest on the discounts that they refund. If the violation is systematic, egregious, knowing, and intentional, a covered entity may be disqualified from participation for a time determined by HRSA.

Top Four Concerns from 340B Covered Entities

Compliance and Eligibility

RxPreferred's innovative 340B program is built around compliance. Our industry-leading safeguards and comprehensive audit trails ensure that all programs are proactive in adhering to HRSA guidelines.

Policy Changes and Administration

RxPreferred has a team of Apexus Certified Experts (ACEs) to assist with the complexities of a 340B program. Our team has been considered national thought-leaders for the past decade in this space, and Covered Entities and Contract Pharmacies need an administrator that they can trust.

Revenue Loss and Missed Opportunities

RxPreferred's proprietary technology and proactive approach assist in capture rate optimization processes and maximize program opportunities. We continuously evaluate plans for improvements and take deep dives into programs with clients for potential enhancements. Our team is also skilled in program build-out and development; we analyze possible programs and help identify win-win 340B programs with covered entities and contract pharmacies across the country.

Impact of Industry Changes

RxPreferred's dedicated administrators work to keep our partners informed and ahead of potential obstacles and challenges in the 340B program. Our team is quick and agile to make necessary plan adjustments and has proven to be a massive advantage for our clients and partners.


The 340B Drug Pricing Program’s purpose is to give covered entities (safety net providers) relief from high manufacturer drug prices, so they can use the savings to provide more and better services to their clients. However, government programs create an administrative burden; requiring entities to stay in compliance and closely monitor the process to get the best results from the program. Using a 340B program administrator, like RxPreferred, allows covered entities the peace of mind needed to participate in the program successfully. Dedicated administration teams maximize opportunity and minimize costs to help covered entities successfully reinvest their 340B savings back to the community.

Join us in transforming healthcare.

RxPreferred is a fully transparent 340B administrator that partners with hospitals, health systems, clinics, and pharmacies to build customized 340B programs. Our team creates programs from scratch to meet the needs of the community in which Covered Entities and Contract Pharmacies serve. We are very proud to have a 100% HRSA audit pass rate and look forward to serving our partners by maximizing program potential with our best-in-class service and administration.

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