There’s a lot of misunderstanding lately about how the 340B Drug Program works, as more pharmaceutical manufacturers unilaterally place restrictions on accessing 340B drugs at contracted pharmacies and enlist their allies in attacking the program. So in the interest of broadening awareness of the importance of 340B, and how it works, we offer this outline of the fundamentals of 340B. Sometimes, it helps to go back to the basics — and the original intent.
The federal 340B discount drug program dates to 1992, included as part of the Veterans Health Care Act. It’s a key component of the healthcare safety net, meant to help covered entities, as participants are known, “stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.” The program is administered by the Health Resources and Service Administration’s (HRSA) Office of Pharmacy Affairs.
In a nutshell, the program requires manufacturers to offer certain outpatient drugs at a discount — typically 25-50% off average wholesale pricing — as a condition of participating in Medicaid and Medicare Part B. Typically these drugs are dispensed from in-house pharmacies, though most covered entities nowadays contract with retail and specialty pharmacies to gain access to expensive specialty drugs and optimize benefits through a broader network of pharmacies to serve more patients.
Covered entities use the savings to extend discounts to patients or to support a wide variety of safety net health services that expand access to care for vulnerable low-income populations.
Taxpayers bear none of the cost of the program. The U.S. Department of Health and Human Services estimated that 340B sales in 2020 totaled roughly $38 billion and constituted 7.2% of the overall drug market.
Participation is open to several federal grantees, including federally qualified health centers (FQHCs), Ryan White HIV/AIDS program grantees and specialized clinics, plus the following categories of safety net hospitals:
- Critical access hospitals
- Rural referral centers
- Sole community hospitals
- Disproportionate share hospitals
- Children’s hospitals
- Free-standing cancer centers
Hospitals must meet several requirements to qualify based on their type, including operating as a nonprofit. The largest group of participating hospitals must also meet a certain threshold of disproportionate share hospital (DSH) adjustment on their most recent Medicare cost report, or the equivalent for hospitals that don’t receive DSH adjustment payments. Certain types of hospitals must also agree not to obtain covered outpatient drugs through a group purchasing organization (GPO) or other group purchasing agreement, while others must comply with an exclusion on orphan drugs, a class of medications developed to treat rare conditions.
Requirements and prohibitions
Once granted eligibility, covered entities face a variety of requirements and prohibitions. They must keep their 340B information up-to-date and accurate with the Office of Pharmacy Affairs, and they must recertify for eligibility annually.
There are also two key prohibitions:
- The anti-diversion provision, which states that covered entities cannot offer 340B-purchased drugs to anyone who is not their own patient, or the patient of a provider employed by or under contract with the covered entity. For federal grantees, this prohibition means they can only offer 340B drugs for services specified by the grant funding they receive.
- Duplicate discounts, which means a manufacturer cannot be subject to both a 340B discount and a Medicaid rebate on the same drug
Both prohibitions are a large focus in compliance audits, which HRSA began conducting in 2012. Manufacturers can also request and conduct audits of a covered entity’s 340B program in collaboration with HRSA.
Covered entities must also maintain accurate records documenting compliance, including written policies and procedures, and maintain updates in the OPA information systems database. They must self-report any breaches to HRSA and are responsible for corrective action plans.
Key 340B compliance factors
In addition to the program requirements and prohibitions that the authorizing official of the covered entity must annually attest to HRSA, there are three key compliance elements that covered entities must manage.
The first is utilizing National Drug Codes, or NDCs, in 340B retrospective replenishment to identify a drug, its manufacturer and the package size. In 340B, the drug being replenished must have the same exact 11-digit NDC as the drug that was dispensed to the patient (in some cases, only a nine-digit NDC may be available). If the wrong NDC is used, the wrong manufacturer could end up providing the 340B discount, or the price may not match the package size, strength or formula.
Billing for these drugs in the mixed-use setting can become complicated, as many hospital IT systems bill by drug or Charge Description Master (CDM) code, not NDC numbers. Modern pharmacy systems recognize multiple NDCs, but they transmit the information to the financial system as a CDM code for billing. Frequent drug shortages and other supply issues further complicate the crosswalk between the two formats since replacement drugs may have different NDCs in a replenishment model.
Secondly, covered entities are required to document policies and procedures (P&Ps) that program operations and decisions. In an audit, covered entities must provide their P&Ps for review alongside data on dispensation and purchases, which creates an audit trail.
The final compliance element is reporting and monitoring, which helps covered entities in several ways, including:
- Tracking and understanding their data environment
- Demonstrating key performance indicators to hospital executives
- Identifying areas for improvement or added benefits
- Performing regular self-audits
- Providing information for external auditors
Reporting is especially tricky because 340B requires data from multiple IT systems within a hospital. However, it’s become critical to be able to provide detailed data sets as scrutiny from drug manufacturers, and congressional oversight of 340B, have increased. With robust reporting, covered entities can monitor drug identification and process documentation to close the loop with the main compliance elements.
Despite the complexities, the significant benefits the 340B program provides for covered entities and the vulnerable populations they serve underline the importance of finding a software solution purpose-built to manage and simplify all aspects of the program while keeping the patient front and center. The ongoing contract pharmacy exclusions by manufacturers have forced changes to how 340B works and spurred innovation to maintain the benefit of lower drug costs and improved patient outcomes to communities in need. Our software has evolved to meet the current and future needs of our customers.
You can keep up on many of the nuances and developments in 340B by following this blog.