Pharmacy Benefits Glossary
A guide to general pharmacy benefits terminology.
What Is 340B and How Does It Work?
340B refers to the 340B Drug Pricing Program, a US federal program established to improve medication access for low-income and uninsured patients.
The 340B program is what enables healthcare providers serving low-income and uninsured patients to purchase drugs at reduced costs to make prescription drugs more affordable and accessible. The Office of Pharmacy Affairs (OPA) administers the program.
Drug manufacturers participating in Medicaid must sell outpatient drugs at a discount to healthcare organizations that treat vulnerable communities in order to make medications more affordable for these patients. These discounts can range from 25 percent to 50 percent of the medication’s average wholesale price (AWP).
According to Congress, the purpose of 340B is “to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” By helping “safety-net” healthcare providers reduce medication costs, they can serve communities better and pass savings on to patients who would otherwise be unable to afford them.
340B Program Background
In 1990, Congress created the Medicaid drug rebate program (MDRP) for the purpose of lowering drug costs reimbursed by state Medicaid agencies. As a result, drug companies are required to enter into rebate agreements with the Secretary of the Department of Health and Human Services (HHS) for their drugs to be covered by Medicaid and Medicare Part B. Drug manufacturers also must pay rebates to state Medicaid programs for outpatient drugs under these plans.
Congress extended the MDRP to safety-net providers under the 1992 Section 340B of the Public Health Service Act. 340B began as Section 602 of the Veterans Health Care Act and was subsequently codified as Section 340B of the Public Health Service Act in 1992.
How Does the 340B Program Work?
Under 340B, drug manufacturers enter into a pharmaceutical pricing agreement (PPA) with the HHS Secretary as a condition for their drugs’ inclusion in Medicaid and Medicare Part B coverage.
Manufacturers provide front-end discounts on covered outpatient drugs to “covered entities,” allowing these entities to pass those savings on to low-income and uninsured patients.
What Are Covered Entities?
Covered entities are hospitals and clinics that serve vulnerable patient populations. There are six types of covered entities:
- Disproportionate share hospitals (DSHs)
- Children’s hospitals exempt from the Medicare prospective payment system
- Cancer hospitals exempt from the Medicare prospective payment system
- Sole community hospitals
- Rural referral centers
- Critical access hospitals
Billing Restrictions
The 340B Drug Pricing Program includes several billing restrictions:
- Manufacturers cannot charge more than the 340B ceiling price, which is the average manufacturer price (AMP) reduced by the unit rebate amount (URA).
- 340B prohibits applying the 340B discount and Medicaid fee-for-service (FFS) to the same drug under the “duplicate discount prohibition.”
- CMS regulations require that states reimburse retail 340B Medicaid FFS drugs based on their actual acquisition cost (AAC), for which states can set the rates.
How Does a Covered Entity Qualify for 340B?
Covered entities must fit into one of the following categories:
- They’re owned or operated by the state or local government.
- They’re a public or private non-profit granted governmental powers.
- They have a contract to provide care to low-income individuals who don’t qualify for Medicaid or Medicare.
What Challenges Does the 340B Program Face?
The following are some of the key challenges of the 340B Drug Pricing Program:
- Drug manufacturers sometimes place limits on which pharmacies are able to dispense 340B drugs, limiting access for patients.
- Even with the Supreme Court addressing concerns, there are challenges with Medicare 340B reimbursements paying less than non-340B options.
- There are concerns over the lack of transparency in how much of the program’s savings are passed on to the patient.
Compliance and Auditing
HRSA conducts audits of covered entities and drug manufacturers to ensure they follow the guidelines. This includes annual recertification for entities and penalties for manufacturers that do not comply.
Drug manufacturers can also audit covered entities under the program to ensure compliance with diversions, duplicate discounts, and other factors.
Compliance with the 340B program also involves adhering to regulatory requirements regarding cybersecurity and patient data privacy. Entities must report any security breaches, and all parties are required to follow industry best practices to protect privacy and data stored and transmitted on organization systems.
