4.1 340B Drug Pricing Program & HRSA

What Is the 340B Drug Pricing Program?

The 340B Drug Pricing Program is a federal drug-pricing program created by Section 340B of the Public Health Service Act in 1992. It is administered by the Health Resources and Services Administration (HRSA), an agency within the U.S. Department of Health and Human Services. The program's purpose is to allow safety-net providers to stretch scarce federal dollars by purchasing outpatient drugs at a statutorily capped "ceiling price."

The Ceiling Price

Drug manufacturers that participate in Medicaid are required, as a condition of having their drugs covered by Medicaid, to offer 340B covered entities a discount on outpatient drugs dispensed to eligible patients. The ceiling price equals the drug's Average Manufacturer Price (AMP) from the preceding calendar quarter, for the smallest unit of measure, minus the Medicaid Unit Rebate Amount (URA):

340B ceiling price = AMP − URA

HRSA calculates the figure to six decimal places and publishes it, rounded to two decimals, in the 340B Office of Pharmacy Affairs Information System (340B OPAIS). The ceiling price is the maximum a manufacturer may charge a covered entity for a 340B-eligible drug; entities may negotiate below it (a "sub-ceiling" price). Memorize the formula as AMP minus a rebate amount per unit — not a percentage discount.

Covered Entities

Not every healthcare provider can buy at 340B prices. HRSA defines specific covered entity categories, each of which must register with HRSA, receive a unique 340B ID, and re-certify annually.

The Patient Definition

A 340B drug may only be dispensed to an eligible patient of the covered entity. HRSA's patient definition requires, at minimum, that the individual is a patient of the covered entity (or of a provider employed by or contracted with the entity) and that the covered entity is responsible for the patient's care. Selling 340B drugs to someone who is not an eligible patient is diversion — a program violation.

GPO Prohibition (Hospitals)

The GPO prohibition bars certain hospital covered entities from obtaining covered outpatient drugs through a group purchasing organization. It does not apply to every hospital, and the exam tests exactly which ones:

A DSH, children's, or free-standing cancer hospital must buy its covered outpatient drugs directly from the manufacturer or through a wholesaler on a 340B account, not through a GPO contract. The prohibition applies to the outpatient setting; GPO purchasing for inpatient drugs is permitted, which is why hospitals run separate 340B, GPO, and wholesale acquisition cost (WAC) accounts and rely on split-billing software to keep them apart.

Duplicate Discount Prevention

A drug cannot receive both a 340B discount and a Medicaid drug rebate for the same drug and the same patient. To prevent this duplicate discount, covered entities must either (1) "duplicate discount comply" by excluding 340B drugs from Medicaid rebates — typically through a Medicaid managed care carve-out or by reporting Medicaid utilization to the manufacturer — or (2) use drug-by-drug reporting. HRSA audits whether entities have a system in place to prevent duplicate discounts.

Child Sites

A covered entity may dispense 340B drugs at off-site locations called child sites, which must be registered with HRSA and listed under the parent entity. Child sites must meet eligibility criteria (e.g., they must be part of the covered entity, provide healthcare services, and be listed on the entity's HRSA registration). Child sites let entities extend 340B access to satellite clinics while remaining within program limits.

HRSA Audits and Sanctions

HRSA audits covered entities and manufacturers. The two core program violations are diversion (providing 340B drugs to ineligible patients) and duplicate discounts (claiming both 340B and Medicaid rebates). Sanctions for entities found in violation may include repayment of the discounted amount (or more) and possible termination from the 340B program. Manufacturers that overcharge may face civil monetary penalties. Accurate recordkeeping — including 340B purchase, dispensing, and audit records — is essential because HRSA may audit several years of data.

Worked Scenario: Diversion at a Hospital Outpatient Pharmacy

A 340B-covered DSH hospital runs an outpatient pharmacy. A patient walks in with a prescription written by a private (non-hospital) physician for a drug to treat a non-covered condition, and the patient is not an established patient of the hospital or any of its clinics. Dispensing that drug from 340B inventory would be diversion, because the patient does not meet the patient definition. The technician should flag the prescription, verify whether the patient is an eligible patient, and — if not — dispense from the hospital's non-340B (GPO or direct) inventory rather than from 340B stock. Maintaining separate 340B and non-340B inventory (physical or virtual via split-billing software) is a core compliance practice.