The Federal 340B Program: A Call to Order

By: Jeffrey R. Lewis & Willam E. Arnold, Co-Chairs, Community Access National Network 340B Commission

The 340B Drug Pricing Program was created by Congress to allow nonprofit healthcare providers to maximize their use of limited dollars to ensure access to medicines for uninsured patients with acute and chronic health conditions and disorders.

Since its inception, the program has grown dramatically, and with it so have the challenges, opportunities and the questions of whether what was created 26 years ago should be re-cast? While advocates argue that the status quo is good enough, others are asking questions that get to the heart of the future of the program. Is this program benefiting nonprofit healthcare providers or patients who do not have prescription drug coverage? Are nonprofit hospitals and other 340B providers treated equally or are there different levels of transparency rules? Are all 340B providers required to reinvest their 340B revenue in patient care and staffing, or is the program so opaque that the rules are disproportionately benefiting one certain kind of 340B providers?

At the inception of the 340B program, the number of uninsured individuals in the U.S. was greater than it is currently; many state Medicaid programs limited eligibility; and access to free or subsidized medication programs was not as robust as it is today.

Unlike all other federal health programs, the costs of the 340B program are born by the pharmaceutical industry. The 340B program requires pharmaceutical manufacturers that participate in Medicaid and Medicare (Part B) programs to provide discounts on covered outpatient medicines to nonprofit healthcare providers (Covered Entities) licensed to provide care under the 340B program.  When the 340B program was created, many uninsured patients used hospital emergency rooms for primary care; nonprofit hospitals were often paying for the needed medications to keep the patient from showing up again; and, the cost impact on the hospitals was rising. Congress wanted to ensure that nonprofit healthcare providers could stretch limited dollars. So, the 340B program was designed to aid that effort.

Today, the 340B program has grown considerably – both in the number of people being served and, in the type, and number, of providers allowed to participate in the program. The program provides uninsured patients access to medications at considerable savings, lowering the cost of pharmaceuticals by 20-50 percent, and has benefited many at-risk clinics and the patients they serve. But, how are patients who have insurance, particularly high deductible health plans, benefiting from the 340B program?

As the program has evolved, questions have grown: Should the status quo be maintained? Should Congress take a fresh look at who qualifies for the program, as well as whether the number and types of providers have grown too much? Is the program transparent? Should transparency be enhanced/modified? Why are hospitals participating in the 340B program treated differently than other Covered Entities in how they can spend 340B program revenue? Why should drug stores be allowed to dictate their “pay to play” price to Covered Entities and take a portion of the 340B savings? Why aren’t all pharmacies paid a consistent, flat fee? What role do Pharmacy Benefits Managers play in the 340B program? Is there a true value proposition? How can technology and innovation play a larger role in ensuring that Covered Entities are not double billing Medicaid and 340B for the same medication?

The Community Access National Network (CANN) is a national, nonprofit organization that has been involved in 340B policy issues for many years. It recognized the need to provide Congress, the White House, other elected officials and regulators with a frank assessment of the program. Recently, CANN gathered a diverse group of healthcare professionals for this purpose and the National 340B  Commission was created.

The Commission found that, generally, the 340B program has made and continues to make an invaluable impact on the lives of the institutions it was initially targeted to help. But, with an increasing number of uninsured covered through employer plans and expanded Medicaid programs, it’s important to ensure that those patients truly in need are being helped. It also appears that the program needs technological updates to how it is administered, to maximize the value of every 340B dollar spent.

While the 340B program has been invaluable to many Covered Entities, no federal program is perfect.  We believe that there are areas in which private sector technology and skills can help close some of the holes in the 340B program, and, where common sense needs to rule.

1. Transparency

Transparency should be woven into the fabric of the 340B program. Congress, governors, state legislatures, Covered Entities, and pharmaceutical manufacturers should understand how the 340B program is helping to serve more people. Specifically, it must be made clear how Covered Entities are generating 340B revenue, which types of patients are served and which kinds of medicines are covered. It is important to explain how this revenue is reinvested in the program to provide greater patient care and access to providers and help Covered Entities strengthen their medical staffs.

Why is it important?  Federally Qualified Health Centers (FQHCs) and Hemophilia Treatment Centers are required to reinvest every 340B dollar earned into patient care or into the operation of the Centers to maximize patient access and care. For example, when a patient with private insurance receives healthcare services from a 340B provider (known as a Covered Entity), they pay their traditional copay for any needed medication. All 340B providers retain the difference between the 340B discounted price and the higher reimbursement paid by insurers.

The one exception is how the “pocketed” money must be spent. FQHCs and other participating medical providers are required to pass along the discounts to patients and to provide annual reports about their service to vulnerable populations to the Health Resources and Services Administration (HRSA), which oversees the 340B program. However, 340B hospitals are not required to do this.  Consequently, these providers can generate 340B profits by pocketing the difference between the discounted price that they paid for the drugs and the higher reimbursement paid by insurers and patients.

Consequently, we do not know how the 340B dollars are reinvested. We have no way of knowing how much is utilized for direct and indirect patient care, hiring medical professionals, or other needs.  Also, given the growth of high deductible health insurance plans, it is important to fully understand whether and how hospitals are using the 340B revenue to help reduce out-of-pocket costs,  particularly for patients who do not qualify for Medicaid and whose incomes are less than 300 percent of the federal poverty level.

2. Duplicate Discounts

Duplicate discounts are the direct result of a conflict between two federal programs – Medicaid rebates intended to benefit state Medicaid programs, and 340B discounts intended to benefit eligible safety-net health care providers (340B-Covered Entities). There is a substantial overlap in prescription eligibility between the two programs, making it possible for both states and Covered Entities to claim a discount for the same purchase. The federal government has failed to address this problem.

The Commission proposes five recommendations:

  • Claims Level Standards
    • There is a need to collect claims level data standards for Medicaid rebates being made by the states to manufacturers. Currently, there are no standards for the kind of data the states must supply. As a result, pharmaceutical manufacturers are playing catch up using limited data. This makes recovering or preventing duplicate discounts almost impossible.
  • Data Fields Used to Prevent Duplicate Discounts
    • Medicaid uses a combination of Medicaid Exclusion File (MEF) and claims modifiers to prevent duplicate discounts, but the system is rife with confusion. First, states are not required to use any set format or form; entities utilize a variety of methods. Second, the MEF doesn’t apply to managed Medicaid or contract pharmacies, limiting its utility. Third, the claims modifiers used by states require 340B awareness at the time of dispensing, which is not how 340B programs generally work. Finally, states have effectively punted managed Medicaid and 340B to plans which are the least likely to understand or have experience managing 340B participation.  This means the entire system is stacked against the manufacturers. At a time when we are asking for greater clarity in the 340B program, this is an important place to start.
  • Creating a Claims Clearing House
    • To proactively prevent duplicate discounts, the Secretary of Health and Human Services should seek the development of a private sector claims clearinghouse platform for the Covered Entities and manufacturers (and plans and states), so they can share data in an antitrust safe harbor. This clearinghouse would collate data from participating parties and pass it back to them in a manner that prevents duplication
  • Pharmacy Adjudication Chaos
    • To overcome the chaos surrounding contract pharmacy adjudication, we recommend establishing a HIPAA-compliant HUB for Covered Entities. Entities would send verified 340B drug usage files to this HUB. Registered drug manufacturers could access and use the files to match against rebate requests. We also recommend mandating that Covered Entities submit 340B-eligible dispensing data files to the HUB within 30 calendar days after the date of service. (340B data aggregators exist and can meet this requirement. A 30-day turnaround should accommodate any return-to- stock,  and other similar processes).
  • Learn from Hemophilia Treatment Centers How  to Avoid Duplicate Billing
    • Hemophilia Treatment Centers in California, in collaboration with the state, created a coding system that distinguishes 340B products from non-340B products, making it possible to track product eligibility for pharmaceutical rebates to the state. We recommend that Congress, HHS, and the GAO review and comment on the California HTC system to determine whether a similar system could address or solve Medicaid and pharmaceutical industry concerns regarding duplicate billing.

3. Contract Pharmacy, TPA or PBM: Transparency

The Commission proposes three recommendations:

  • 340B Revenue
    • With respect to 340B revenue, any entity is serving as a contract pharmacy, TPA or PBM should be required to report its fees to a Covered Entity and submit the data (by state) to the  HUB, HRSA, state Medicaid agencies and the Office of the Inspector General at the Department of Health and Human Services. Also, each company’s website should list, by state, its 340B revenue.  It is important for elected officials to understand where the 340B revenue is going, and for what purpose it is being spent.
  • Charity Policy
    • We recommend requiring that all Covered Entities develop enterprise charity care policies for contract pharmacy services, similar to what FQHCs are currently required to do. For example, they could utilize sliding scale fees and report the number of individuals that realized savings as compared to the total number of people eligible to receive benefits. This could be accomplished using a centralized processor.
  • Dispensing Fees
    • We recommend requiring the disclosure of contract dispensing fees and all other fees to HRSA/OPA. Covered Entities would be required to explain whether the contract pharmacies are simply dispensing medications or providing additional services which warrant their fees. We also recommend establishing safe harbor guidelines for the flat fair market value of contract pharmacy dispensing fees, which take into consideration a contract pharmacy’s margin loss, increased the cost of the pharmacy services, and the projected entity cost associated with developing its distribution capabilities.

4. Create a National Database with the Expertise of 340B Software Experts

We recommend that HRSA/OPA and the HHS Office of the Inspector General work with the top five 340B software vendors (Sentry Data Systems, Rx Strategies, PharMedQuest, McKesson, and Cardinal Health) to create a national database to provide for compliance with HRSA/OPA 340B oversight. Such a database would ensure that the Office of the Inspector General at HHS has complete access to all 340B claims by Covered Entities.

  • Data Clearinghouse
    • We recommend establishing a nationwide clearinghouse or retrospective claims identification process to identify and remove 340B claims from Medicaid managed care drug rebate claims. The clearinghouse, which could be developed by the private sector,  could be funded with a user fee on Covered Entities and administered without the involvement of manufacturers.

5. Patient Definition

Advocates of the 340B program have consistently argued that the 1996 definition of who qualifies as a 340B patient should not be changed.  Others argue it is ambiguous, and even the federal agency in charge of the program, Health Resource Services Administration put forth an effort in the Obama Administration recommending a revised definition. But, nothing changed.

Today, many of the uninsured patients who were being cared for by nonprofit hospitals have coverage through Medicaid or ObamaCare. The targeted 340B population has changed over time, but the program has not. While more providers are eligible to participate in the 340B program, with fewer uninsured, many providers are targeting insured patients particularly hospitals that have purchased oncology practices.

While there is little discussion regarding why it is well known that these hospitals are chasing the 340B spread on oncology and infusion medications (the difference between the 340B acquisition price and the price reimbursed by the health plan PBM).

Who qualifies as a 340B patient should be at the root of future discussions to help ensure that those in need have access to care and the lowest possible price on medications. In examining this, it is important to remember the growing income disparities that are impacting working class Americans and the value they receive when receiving care from a Federally Qualified Health Care Center, a Ryan White Clinic or a Hemophilia Treatment Center. Often their incomes may be above the 200 percent of poverty threshold which eliminates them from eligibility for a sliding fee scale for their healthcare services. We believe, when it comes to 340B medications, it is long overdue for Congress to recognize these disparities and increase patient eligibility to 300 percent of the federal poverty level.

While controversial, the stark income realities of our time dictate this.

Over the years, one of the most contentious issues is which patients are eligible for 340B? No single issue has caused greater angst among the advocates and opponents of the 340B program. To date, despite efforts by the Obama Administration to change the “patient definition,” the only definitive definition was issued by HRSA in an October 1996 regulatory final notice.

While organizations are benefitting from the current 340B program advocate for the patient definition to remain the same, others argue that the definition is overly broad and tough to interpret and that it has led to the unsustainable growth of the 340B program.

First, the CANN 340B Commission recommends that the existing HRSA patient definition is left in place with the following modifications: For those patients being discharged from the hospital, the prescriptions given to them as they leave will continue to be considered outpatient prescriptions. This is important in reducing avoidable readmissions by ensuring patients who are discharged have the medicines they need to become healthier. Most importantly, if they cannot afford the medicines, the hospital will use its 340B revenue to cover those expenses.

An alternative would be to use 340B savings to help patients by creating a community-based risk pool in which a portion of net income or “savings” would be placed and managed by a third party to address patient needs. This program could be managed by entities such as a nonprofit PBM, a community-based charity care program, or a patient-based organization, with proper credentials that are approved by pharmaceutical manufacturers and HRSA.

Second, patients referred for infusion therapy must be ongoing patients of the referring Covered Entity. This means that when an FQHC, for example, refers a patient to a hospital-based infusion center or other 340B qualified infusion entity, the link between the patient and the Covered Entity cannot be broken so that the patient retains his or her patient status with the referring Covered Entity.
Further, we recommend the elimination of two Covered Entities both benefiting from 340B for the same patient. In other words, when a patient is referred to another Covered Entity for infusion therapy, the referring Covered Entity will ship the medication with the patient or replenish it using its 340B program. As a result, the second Covered Entity will be paid for their services, but not benefit from the 340B program.

The exception for all of this would be when a patient is referred from an FQHC or other Covered Entity to a 340B eligible hospital, and it is discovered that the patient has an illness that the FQHC had not discovered. For any new outpatient medical treatment provided by the hospital, any medication required for that specific illness would be prescribed by a hospital-based medical provider, and the 340B savings would remain with the hospital. However, if the patient is referred to his or her FQHC or another grantee for disease management, that entity assumes primary responsibility. Furthermore, if meds are provided, the prescribing entity would realize those savings. The savings go to the entity prescribing and delivering the service if the patients’ medical record is housed there.

Third, it is critical in rural America that we create 340B flexibility, recognizing that access to infusion therapy and other 340B-covered services may not be as readily available as it is in other service areas. To address this issue, we encourage Covered Entities in rural areas to explore partnering with Home Health Agencies, Visiting Nurses and other professionals to provide the infusion service without the need for hospital partners. However, should medication be recommended for the patient, only the 340B Covered Entity that holds the patient’s medical record could prescribe.


The 340B program offers eligible nonprofit healthcare providers an opportunity to serve more people.  Closing loopholes using technology to create systemic change is critical. It is also incumbent upon Congress and HHS to challenge the status quo to ensure that the intent of the program is being met.  In doing so, the opportunity exists to redefine whom this program should focus on — patients or providers? Should the program only serve uninsured patients, those who are under-insured, or all patients?

Hospitals live on a unique 340B island. But why do they live under different rules than other Covered Entities? FQHCs, Ryan White Clinics, ADAPs, and Hemophilia Treatment Centers are required to reinvest 100% of their 340B savings into direct or indirect patient care. Why not require hospitals to do the same?

For the CANN 340B Commission, the status quo is simply not good enough! We look at the 340B program as an integral part of the healthcare safety net. But, the gaping holes in the safety net caused by inconsistent regulations and oversight have stymied the programs ability to serve more people in need. Both the challenge and the opportunity for Congress, the White House and Regulators are to change the status quo or continue to sit on their hands and fingers.

The CANN 340B Commission’s final report can be downloaded online.

Jeffrey R. Lewis and William E. Arnold co-chaired the 340B Commission. The views expressed are their own.