United States: 340B Guidance: Eight Key Points Covered Entities Should Consider

On August 27, 2015, the Health Resources and Services Administration (HRSA), an agency of the U.S. Department of Health and Human Services (HHS), released the 340B Drug Pricing Program Omnibus Guidance (Guidance). Referred to as "proposed" guidance by HRSA, the Guidance is intended to clarify a multitude of issues for the thousands of registered covered entities participating in the 340B Program, as well as for the contract pharmacies providing services to those covered entities.

While the Guidance covers a number of proposed changes and "clarifications" in some depth, there are several key areas for providers and manufacturers to consider. However, it is important to remember the Guidance is "draft" guidance. Consequently, it is important for both providers and manufacturers to submit their comments on the Guidance. With that said, the following are eight key points that providers and manufacturers should consider:

1. "Child Site" Registration and Eligibility

Generally speaking, "covered entities" are typically Federally Qualified Health Centers and certain types of hospitals or clinics. However, there has long been a question about outpatient clinics associated with these facilities. The Guidance goes into great detail explaining which facilities can be covered entities, particularly in the case of off-site outpatient facilities and clinics affiliated with parent covered entities. Previously, non-hospital covered entities were often considered entities that receive certain federal grants, contracts, designations, or projects. However, the Guidance states that a non-hospital covered entity may also include associated healthcare delivery sites that are located off-campus. The covered entity must demonstrate that these "child sites" satisfy certain requirements and must register them, and the Guidance proposes listing child sites in the public 340B database. HHS is seeking comments on alternatives to demonstrating the eligibility of off-site outpatient facilities.

If a parent covered entity loses its 340B eligibility, all child sites will be removed from the program at the same time according to the Guidance. However, a child site may also lose eligibility separately from the parent covered entity in certain situations.

2. Exception to GPO Prohibition

The Guidance confirms that disproportionate share hospitals, children's hospitals, and freestanding cancer hospitals in the 340B Program are still subject to the group purchasing organization (GPO) prohibition. In other words, these entities cannot "obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement." However, the Guidance also confirms that the GPO prohibition does not extend to inpatient drug purchases. This prohibition extends to any pharmacy owned or operated by these covered entities, and takes effect as of the start date of enrollment in the 340B Program. Covered entities should keep in mind that the GPO prohibition also extends to the use of a GPO in certain 340B replenishment models. However, the Guidance does provide certain exceptions to the prohibition for certain covered entities from using GPOs.

  • A GPO account can be used for an off-site outpatient facility (i.e., one that is not at the same physical address as the parent covered entity) of a covered entity that is not participating in the 340B program or listed in the public 340B database.
  • GPO drugs can be provided to inpatients reclassified as outpatients by a third party, such as an insurer or a Medicare Recovery Audit Contractor, so long as the patients' status is sufficiently documented.

The Guidance also proposes recognizing an exception to the GPO prohibition for hospitals that cannot access a drug at the 340B price or at wholesale acquisition costs to prevent disruptions in patient care.

3. Definition of Eligible Patient

The conditions that must be met for an individual to be considered a patient of a covered entity have increased. Now to be considered a patient, all of the following conditions must be met:

  • The individual receives a healthcare service at a facility or clinic site that is registered for the 340B Program and listed on the 340B database;
  • The individual receives a healthcare service provided by a covered entity provider who is either employed by the covered entity or is an independent contractor for the covered entity, "such that the covered entity may bill for services on behalf of the provider";
  • An individual receives a drug that is ordered or prescribed by the covered entity provider described immediately above as a result of the service;
  • The individual's healthcare is consistent with the scope of the "Federal grant, project, designation, or contract";
  • The individual's drug is ordered or prescribed pursuant to a healthcare service that is classified as outpatient; and
  • The individual's patient records are accessible to the covered entity and demonstrate that the covered entity is responsible for care.

The Guidance provides that if "normal health care operations are disrupted due to a public health emergency declared by the Secretary, a covered entity may request, and HHS may authorize, a covered entity to temporarily follow alternate patient eligibility criteria."

Finally, HHS has reaffirmed that covered entity employees are not eligible to receive 340B drugs solely by virtue of being employees of the covered entity, "but by being a patient as defined in this guidance."

4. Prohibition of Duplicate Discounts

Currently, covered entities must report whether they use 340B drugs for drugs billed to the Medicaid fee-for-service (FFS) program. In other words, covered entities must report whether they carve in or carve out Medicaid FFS. Interestingly, the Guidance provides that covered entities may choose to make a different determination for patients of Medicaid managed care organizations (MCOs). However, in order to carve in MCO patients, the covered entity must have a process to identify Medicaid MCO patients and should have a plan to prevent duplicate discounting. If the covered entity wishes to purchase and dispense 340B drugs to Medicaid FFS or Medicaid MCO patients through a contract pharmacy arrangement, it must provide HHS with a copy of its agreement with the contract pharmacy and applicable state Medicaid agency or MCO detailing how the arrangement will prevent duplicate discounts.

5. Contract Pharmacy Arrangements

A covered entity may contract with as many contract pharmacies as it deems necessary so long as such arrangements comply with 340B Program requirements and all applicable federal, state, and local laws, including the federal anti-kickback statute. While the Guidance does not propose to limit the number of contract pharmacy arrangements a covered entity may have, only covered entities may register or make changes to a contract pharmacy listing on the 340B Program database. Additionally, HHS may remove contract pharmacies from the database and from participation in the 340B Program if it determines the contract pharmacy is not complying with the requirements of the 340B Program.

6. Manufacturer Responsibilities

The Guidance lays out specific requirements and expectations for pharmaceutical pricing agreements (PPA), when a manufacturer has entered in a Medicaid Drug Rebate Agreement (MDRA), or if the manufacturer is not subject to an MDRA but has decided to voluntarily enter into a PPA for 340B covered drugs. The Guidance addresses transfers of ownership and requires that a PPA be automatically assigned to the subsequent owner. The Guidance also reiterates that pursuant to the PPA, a manufacturer must offer all covered outpatient drugs at no more than the statutory 340B ceiling price and explains the manufacturer's obligation to offer 340B prices to covered entities that are listed in the public 340B database. Further, the manufacturer is prohibited from conditioning an offer of the 340B ceiling pricing on a covered entity's compliance with the 340B Program requirements. With respect to the PPA, the Guidance outlines "expectations" that apply to the manufacturers that participate in the 340B Program. These expectations include:

  • Requiring that the manufacturer sign a PPA within 30 days of enrolling in the MDRA;
  • Updating the 340B database record and PPA to ensure new 340B drugs are included;
  • Keeping records for at least five years; and
  • Allowing for HHS audits.

Importantly, the Guidance also addresses how a manufacturer should handle refunds and credits in the event the manufacturer overcharges a covered entity for a 340B drug. The refund should be the difference between the charged price and the 340B price and should occur within 90 days of the overcharge being identified by the manufacturer or HHS.

7. Rebate Option for AIDS Drug Assistance Program

The Guidance outlines the requirements and procedures for state AIDS Drug Assistance Program participation in the 340B Program. These programs may participate through the rebate option or through a hybrid option, which is participating in the 340B Program using both the direct purchase option and the rebate option. The Guidance warns that AIDS Drug Assistance Programs participating in either of the options may not seek a 340B rebate for a drug that a covered entity purchased at or below the statutory ceiling price.

8. Program Integrity

The Guidance confirms that HHS has the authority to, and will conduct, audits of various covered entities, including registered child sites and contract pharmacies. In the event of an audit, covered entities are required to provide requested records pertaining to 340B Program compliance. Covered entities will be provided with an opportunity for a hearing to respond to a negative audit finding, and will have the opportunity to submit a corrective action plan in the event of a finding of noncompliance. Manufacturers are also permitted to audit the records of covered entities, child sites, and contract pharmacies to assess compliance. In addition, manufacturers, subcontractors, and wholesalers may be subject to HHS compliance audits.

Interested stakeholders are invited to submit comments on the proposed Guidance on or before October 27, 2015.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Ostrow Reisin Berk & Abrams
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Ostrow Reisin Berk & Abrams
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions