Blog Post

Proposed 340B Drug Pricing Program Guidance – What You Need to Know


The 340B Drug Pricing Program has been the subject of considerable controversy in recent years. Enacted in 1992 as a way to allow qualified safety-net health organizations to purchase prescription drugs at heavily discounted prices, utilization of the program has swelled, in part due to expansion efforts by the Affordable Care Act. Between 2005 and 2014, the number of participating entities (and estimated annual purchases) more than tripled, leading pharmaceutical companies and some lawmakers to claim that hospitals are abusing the discounts.

On August 28, 2015, the Health Resources and Services Administration (HRSA) issued proposed guidance pertaining to the 340B program. This guidance came in lieu of the “mega rule” that was anticipated in 2014, plans for which were scrapped after a federal court ruled that HRSA lacked authority to issue regulations pertaining to the program. The proposed guidance aims to provide greater clarity on a number of topics that have been inconsistently interpreted or have been sources of controversy.


The proposed guidance addresses a broad range of topics, including “eligibility and registration of hospitals and outpatient facilities, individuals eligible to receive 340B drugs (patient definition), drugs eligible for purchase under the Program, prohibition of duplicate discounts, and manufacturer compliance, and others.”1 The proposed guidance is open for comment through October 27, 2015.

For hospitals participating in the program, the proposed guidance would have a number of operational implications related to:

  • Annual recertification of program eligibility.
  • Patient eligibility for the program.
  • Audits of contract pharmacies.

For many organizations, it is the proposed changes to the patient eligibility definition that could have the most significant implications. Specifically, the proposal includes a six-part test to determine whether individual patients are eligible to receive 340B drugs:

  1. The individual receives a health care service at a facility or clinic site which is registered for the 340B Program and listed on the public 340B database.
  2. The individual receives a health care service provided by a covered entity provider who is either employed by the covered entity or who is an independent contractor for the covered entity, such that the covered entity may bill for services on behalf of the provider.
  3. An individual receives a drug that is ordered or prescribed by the covered entity provider as a result of the service described in (2).
  4. The individual’s health care is consistent with scope of the Federal grant, project, designation, or contract.
  5. The individual’s drug is ordered or prescribed pursuant to a health care service that is classified as outpatient.
  6. The individual’s patient records are accessible to the covered entity and demonstrate that the covered entity is responsible for care.2

One of the core issues addressed in this test is the relationship between healthcare providers and 340B-covered entities (hospitals). The first criterion in the eligibility test makes it clear that the provision of healthcare services (e.g., E&M services) that result in the dispensing or administration of 340B drugs to a patient must occur in a facility operated by the covered entity and registered on the 340B website. The second criterion stipulates that the covered entity bills for the professional services of the provider during the time that he/she prescribes the dispensing or infusion of 340B drugs to patients. The third criterion expounds on the second, stating that the provision of 340B drugs relates directly to health conditions that are being managed by a provider who complies with the second criterion. Moreover, the third criterion goes on to elaborate that:

An individual would not be considered a patient of a covered entity whose only relationship to the individual is the dispensing or infusion of a drug. The dispensing of or infusion of a drug alone, without a covered entity provider-to-patient encounter, does not qualify an individual as a patient for purposes of the 340B Program.3

The fourth criterion applies to organizations accessing the 340B program via a federal grant, project, designation, or contract and does not apply to hospitals. The fifth criterion speaks to the need to accurately monitor patient designations (inpatient or outpatient) for individuals receiving services in an acute care facility. We will explore this issue in greater depth in a future In Brief, as it does not pertain to patients in ambulatory settings.

Finally, the sixth criterion requires that the “covered entity maintains auditable health care records that demonstrate the covered entity has a provider-to-patient relationship for the health care service that results in the order or prescription and that the covered entity retains responsibility for care that results in every 340B drug ordered, dispensed, or prescribed to an individual.”4 Again, this criterion amplifies the first three and requires that the organization maintain documentation demonstrating compliance in every instance.

Thus, if the proposed regulations are adopted, organizations would need to carefully examine current operational policies to ensure their compliance with the guidelines. Examples of practices that may not meet the tests outlined above include:

  • Infusion therapy clinics operated by covered entities that receive referrals from community oncologists and utilize 340B drugs for the chemotherapy infusions.
  • Aligned providers (employed or contracted) who furnish healthcare services on behalf of the covered entity that result in the dispensing or infusion of 340B drugs, yet the clinical space in which they provide services from is not registered on the 340B website.
  • Organizations that operate a combination of off-campus clinics, with only some registered on the 340B website. If a patient sees a provider in both settings, only those prescriptions issued during visits in clinics registered on the 340B website would be eligible for 340B pricing.

In the guidance, HRSA states that in order for off-site outpatient facilities and clinics to be eligible to participate in the program, the “hospital covered entity provides its most recently filed Medicare cost report demonstrating that: 1) each of the facilities or clinics is listed on a line of the cost report that is reimbursable under Medicare; and 2) the services provided at each of the facilities or clinics have associated outpatient Medicare costs and charges.”5 HRSA is specifically seeking comments regarding the most appropriate way to demonstrate that an off-site outpatient facility meets these requirements.

Next Steps

What should organizations do today?

First, the proposed guidelines are just that – proposed. This is a chance for organizations to review the guidance and submit their comments to HRSA by the October 27 deadline.

Second, bringing current practices into compliance with the proposed guidelines may be time-consuming and/or costly. Organizations should begin studying the guidance immediately and complete a gap assessment of current operations in order to identify a potential work plan for when/if the guidance is finalized.

In response to the issues of patient eligibility, organizations need to conduct an audit of referring and prescribing physicians associated with all 340B drugs dispensed or administered. For each physician identified, organizations should assess whether his/her current operations are in compliance with the criteria outlined above.

This assessment will help organizations understand the potential scope of operational changes needed. It can also be used as a basis for developing a cost/benefit analysis to determine the financial impact of preserving 340B volumes associated with a particular provider, as opposed to the cost of modifying operations in order to meet the new guidelines.

In total, this process will give organizations the information they need to develop a strategic plan to address the identified issues along with the financial information needed to prioritize the work plan.

ECG will continue to study the rules and monitor the comment/approval process. We’ll dive more deeply into this topic in the coming weeks, and as more information becomes available, we will issue additional updates. In the meantime, do not hesitate to contact us with any questions regarding the proposed guidance.