The 340B Drug Pricing Program

The 340B drug pricing program enables hospitals and pharmacies to offer prescription drug discounts to their patients.

  • What is 340B?

    The 340B drug pricing program requires drug manufacturers to offer reduced prices on covered outpatient drugs to qualifying health care organizations. Created in 1992 as part of the Veterans Health Care Act, the program is managed by the Office of Pharmacy Affairs (OPA) of the Health Resources and Services Administration (HRSA) in Health and Human Services.

How does the 340B drug pricing program work?

First, hospitals receive prescription discounts typically ranging from 20-50% on covered outpatient drugs. Then, hospitals and health system pharmacies give these medications away or provide them at a very low cost to uninsured and underinsured patients. They do this by using discount prescriptions, pharmacy savings cards and coupons. For commercially insured patients, hospitals sell the medications at a price negotiated with insurance companies. Hospitals then use the savings from the 340B program to fund new or expanded clinical services for patients.

Which drugs are covered under 340B?

The 340B program generally includes the following outpatient drugs:

  • FDA-approved prescription drugs
  • FDA-approved insulin
  • Doctor-prescribed over-the-counter (OTC) drugs
  • Prescription-only biological products (apart from vaccines)

Changes in the 340B landscape

The 340B medication assistance program is dynamic and complex. It requires cooperation among hospital departments to optimize savings while meeting program compliance requirements.

Adding to the complexity, many sophisticated patient medications have moved from acute inpatient care to ambulatory care. As more hospitals have become part of integrated delivery networks (IDNs), hospital pharmacists have expanded their services in ambulatory, retail and specialty pharmacy.

Manufacturers, regulators and others with an active economic interest in the 340B drug pricing program will continue to challenge hospital participation and the effectiveness of 340B. Hospitals should be prepared to meet the continuing challenge with a well-run 340B program supported by adequate resources, regularly reviewed for compliance and performance.

340B regulation

Between 2018 and 2020, the 340B medication assistance program will experience a combination of increased regulation, growing oversight in the form of HRSA 340B audits, and increasing penalties for hospitals whose programs are run outside of the new, tighter boundaries. HRSA focuses on the following aspects:

  • 340B patient definition and eligibility
  • Contract pharmacy compliance requirements
  • Hospital and other covered entity eligibility criteria
  • Eligibility of off-site facilities
  • Definition and eligibility of covered outpatient prescription medications

HRSA does not provide specific guidelines for how participants should implement the 340B drug pricing program. Instead, it governs through policy notices that address elements of program compliance and implementation.

Covered entities know contract pharmacy relationships can be complex and that compliance issues have the potential to jeopardize their status. Having a robust internal and external auditing process in place – along with a well-utilized 340B management software package – can help mitigate audit risks.

Best practices for effectively managing the 340B drug discount program

Many hospitals and health systems rely upon indigent care programs designed to reduce costs, including the 340B prescription drug pricing program and manufacturer patient-assistance recovery. However, participation in drug discount programs can be time-consuming and requires staying current with ever-changing regulations.

Align your hospital's plan with your ambulatory and contract pharmacy strategy

340B can improve the financial performance of a sound proposal, but it can't save a poorly planned pharmacy strategy. Understand your hospital's plan for continuing care, patient volumes and provider relationships. Then align these with costs and services. Examining provider relationships and competition from others in the same service area is crucial.

Since pharmacies continue to serve as strong partners in assisting indigent care management, it's important to build a strong 340B contract pharmacy relationship. Consider your network of relationships within the IDN:

  • Will they retain access to these patients in the future?
  • If so, under what terms?
  • Health plans, employers and other providers also have substantial ongoing patient relationships. How will hospital patients select a provider, and under what rules and guidelines?

Understand the specialty pharmacy marketplace

According to the , 25% of health systems will conduct their own specialty pharmacy services for at least three specialty medications between 2016 and 2021, and at least 50% of health systems will have formal relationships with retail health care clinics for patient referrals.

Before entering the retail or specialty marketplace, you should ask a number of questions:

  • Are you prepared to compete with the major pharmacy chains? Network size combined with key provider and network agreements, lower cost, and efficient operations make them formidable competitors.
  • 340B provides a cost advantage in drug acquisition, but how much of that savings will be consumed by the cost of operation?
  • How will new therapies affect the bottom line? For instance, recent advances in hepatitis C therapies have had a positive impact on patient outcomes, but high drug prices have proven challenging for the payer and reimbursement communities, making access and delivery of these drugs difficult.
  • 340B discount prescription drug prices are tied to the average manufacturer price (AMP) and are not consistent across therapies.

Determine whether your pharmacy business plan is "340B dependent"

Business plans that depend on 340B prescription discounts consider potential risks and potential alternative outcomes associated with changes in 340B rules. Narrowed patient definition, 340B eligibility or even a changed business relationship with a key group of providers can influence the 340B/non-340B patient mix.

For hospitals subject to the GPO prohibition, non-340B outpatient drugs are purchased at full WAC cost, which can incur a substantial premium.

Evaluate infrastructure needs, including compliance management

Hospital pharmacists often point to new challenges in the ambulatory environment (such as developing and securing talent, resources, and competencies). However, it's also important to assess payer and provider relationships, contracts, and software tools such as retail pharmacy systems and 340B software.

A self-assessment could include the following questions:

  • Have we reviewed our PBM contracts?
  • Have any 340B reimbursement contracts fallen off our radar?
  • Have we built resources to support prior authorization processes for specialty?
  • Have we considered prescription capture rates based on location, business model and network constraints?

Consider if a contract pharmacy partnership is right for your hospital

Contract pharmacy networks can be an important component of a covered entity's 340B program. 340B contract pharmacy partnerships can offer lower-cost options with potentially lower margins and returns. They can also offer the opportunity to delegate tasks like after-hours dispensing and call center support to a network partner.

As you make decisions about whether to engage a contract pharmacy, consider:

  • Your organizational goals, including access, service and quality
  • Partnerships may not provide the same access to 340B drugs as an owned pharmacy
  • How to develop a risk/benefit profile that guides you to build the necessary infrastructure and relationships

Understand the differences between specialty, ambulatory, and retail pharmacies

340B payment rules and models vary for each pharmacy type. In the specialty space, for example, competencies and certifications mean more potential revenue. But in the retail environment, low cost and efficiency contribute the greatest value.

When you understand these important differences, you can make decisions that align with your business plan. Here's a high-level summary of each pharmacy type:

  • Specialty pharmacy typically includes high-cost treatments for rare or uncommon diseases that have special development, handling, administrative and monitoring requirements.
  • Retail pharmacy generally offers a mix of brand and generic oral solid drugs dispensed in 30-, 60- and 90-day supplies.
  • Ambulatory pharmacy usually falls across the two categories and includes "in-clinic" and "in-office" administered drugs.

Manage financial reporting and expectations

A key element in building a successful contract pharmacy network is understanding and managing your CFO's expectations through regular and reliable financial reporting that includes:

  • Developing financial controls and systems to help the 340B team track, manage and report revenue and expenses in detail.
  • Making sure the 340B team can articulate summary numbers presented within the organization. (Robust reporting typically requires efforts beyond software-generated standard reports.)
  • Reporting regularly, consistently and in alignment with the organization. For instance, create a monthly reconciliation report or a quarterly report that highlights trends.
  • Working closely with the hospital finance team to develop a model that works for all parties.
  • Identifying partners in the organization who can provide ongoing support. These may be individuals from the finance or reimbursement department, or from a third-party software provider who can help develop insightful data.

Enforce strict compliance

Covered entities know contract pharmacy relationships can be complex and that compliance issues have the potential to jeopardize their status. Having a robust internal and external auditing process in place – along with a well-utilized 340B management software package – can help mitigate risks.

Managing compliance requires an ongoing investment in infrastructure. And best-in-class contract pharmacy networks understand the value of using a well-supported staff to oversee their 340B drug discount program. For example, a large academic medical center may have three to five full-time employees dedicated to:

  • Manage the contract pharmacy network
  • Manage internal auditing process
  • Generate meaningful financial reports
  • Engage with a third party to conduct annual audits

Build strong contract pharmacy relationships

The first step to building a productive contract pharmacy network is to establish clear organizational goals. The next is to strategically evaluate and select contract pharmacy partners, ensuring expectations are aligned between the parties. With this framework in place, you can focus on managing and strengthening your contract pharmacy relationships with the organizational goals in mind.

As you move forward, make sure you promote open, frequent communication among all parties to reduce the potential for unwelcome surprises—especially during HRSA audits. With the support of your contract pharmacy partners, as well as a timely exchange of transaction data, you'll be able to measure performance and manage expectations.

Align health care supply chain and 340B functions

Getting your health care supply chain and 340B functions to integrate and support each other can be challenging, especially for hospitals and health systems with multiple sites that purchase and dispense drugs to a diverse patient base. This challenge can be further complicated by drug shortages, product changes, dispensing changes and new prices for brand name and generic drugs.

Simplify your alignment process by:

  • Making sure all purchasers at every provider site enter their outpatient drug purchases into the healthcare supply chain system. Help them understand the impact of each purchase on their health care organization's 340B medication assistance program.
  • Planning to run regular performance reports to verify purchases made through the supply chain system to support – rather than undercut – the 340B program and vice versa.

Dedicate time to communication and program advocacy

Hospitals and health systems that fail to stay in close communication about their 340B program can't relay important program modifications to staff responsible for compliance. Pharmacy leaders may be aware of compliance changes, but they often neglect to communicate the significance of these changes. As a result, they don't get the resources they need to deal navigate them effectively.

To solve this issue, hospitals and health systems can:

  • Participate with national and local associations and peer organizations to stay up to date on 340B matters.
  • Ensure pharmacy leaders align on 340B with their chief compliance officer and chief financial officer.
  • Hold regular communication and meetings among pharmacy, compliance and finance departments.

Prepare your organization for a 340B audit

According to the public results of the 340B compliance audits conducted by the HRSA, the most frequent audit finding is "Incorrect 340B Database Record." To prevent this compliance gap, conduct your own audits on a regular basis to see what captured data can tell you, and what is ultimately getting reimbursed. Is the software set up properly to produce the results your health system wants? Ask your vendors to fine-tune their tracking software accordingly.

Audit preparation is the best starting point for covering all compliance-related areas of the 340B program and learning where program financial performance and efficiency can be improved. Consultant experts in 340B often provide a structured and independent review process that may include aspects of the following tactics:

  • Identify personnel with content expertise for each audit segment.
  • Formalize a 340B audit response team with identified executive leadership.
  • Gather recommendations for policy or operational changes to promote 340B program compliance.
  • Develop a 340B compliance plan and oversight committee.
  • Review staffing and resources supporting the 340B program. Include non-pharmacy staff in purchasing, finance, patient accounting, IT and compliance.
  • Change policies and operational procedures to promote 340B program compliance.
  • Look for patients missed or incorrectly included in the 340B program (for hospitals engaged in 340B contract pharmacy).
  • Attend a "340B University" program or a 340B introductory program.
  • Pay attention to the financial implications of maintaining a compliant 340B drug discount program. Hospitals running a compliant program may see additional cost through purchasing of 340B-excluded drugs at WAC or other non-340B price (for hospitals subject to the GPO prohibition or the Orphan Drug Exclusion).