United States: The Long-Awaited 340B Drug Pricing Program Omnibus Guidance: Part III

Last Updated: October 7 2015
Article by Kathleen A. Reed

This is the third in a series of updates addressing the 340B Drug Pricing Program Omnibus Guidance published by the Health Resources and Services Administration (HRSA) on August 28, 2015 (Guidance). The proposed Guidance clarifies various aspects of covered entity and drug manufacturer compliance with Section 340B of the Public Health Service Act (PHSA), topics that are currently addressed in a number of HRSA guidance documents published in the Federal Register dating back to 1992. This update addresses issues of covered drugs, drug replenishment, the GPO prohibition and contract pharmacies under the 340B Drug Pricing Program (340B Program).

Definition of Covered Drug

Under the PHSA, 340B Program pricing applies only to a "covered outpatient drug" (Covered Drug), as defined in Section 1927(k)(2) of the Social Security Act. This statutory definition of Covered Drug specifically excludes drugs, biological products, or insulin "provided as part of, or as incident to and in the same setting as, any of the following (and for which payment may be made" under Medicaid "as part of payment for the following and not as direct reimbursement for the drug)" (i.e., payment for the drug is bundled with payment for the services in these settings):

  • Inpatient hospital services
  • Hospice services
  • Dental services (except when Medicaid reimburses the drug separately)
  • Physician's services
  • Outpatient hospital services
  • Nursing facility and ICF services
  • Lab and X-ray services
  • Renal dialysis services

Note that the bundling limitation only applies to Medicaid reimbursement. If a drug is billed separately/directly to Medicaid, or is billed to the patient or another third party payor, the limitation would not apply. Further, in order to be a Covered Drug, the drug must have an assigned National Drug Code (NDC) and must be used for a medically accepted indication.

Drug Replenishment

The Guidance specifically permits Covered Entities' use of virtual inventory and replenishment systems to keep track of 340B drug ordering and dispensing, provided these systems comply with all PHSA requirements. The Guidance also makes several important points regarding replenishment system use. First, the Guidance stresses that each 340B order placed using a replenishment model must be supported by auditable records demonstrating receipt of the drug by an eligible patient. Second, the virtual inventory and replenishment system must be accurate at all points in time. For example, a Covered Entity that inaccurately tallies or accumulates 340B drug inventory (even if done prior to ordering) will be considered to have transferred 340B drugs to an ineligible patient in violation of the PHSA. Similarly, a Covered Entity has violated the PHSA if the recorded number of 340B drugs does not match the actual number of 340B drugs in inventory. Third, Covered Entities are responsible for requesting 340B pricing at the time of purchase. A Covered Entity that wishes to re-characterize one or more transactions as 340B-eligible on a retrospective basis ("banking") must first notify the manufacturer(s) and ensure that the process is transparent, establishing a "clear audit trail that reflects the actual timing and facts underlying a transaction." Fourth, a Covered Entity should use standard business practices to return unused or expired 340B drugs and to account for waste. Fifth, the Guidance encourages Covered Entities and manufacturers to continue to use the credit and rebill process to correct purchasing errors within 30 days of the purchase. Finally, a Covered Entity should undertake regular reviews of its 340B inventory, and have policies and procedures in place for reconciling discrepancies. These policies and procedures should facilitate creation of auditable records that support compliance with PHSA anti-diversion requirements.  

The GPO Prohibition

The Guidance restates the PHSA's prohibition that certain 340B Covered Entities (disproportionate share hospitals, children's hospitals and freestanding cancer hospitals) may not, as a condition of eligibility under the 340B Program, obtain Covered Drugs through a group purchasing organization (GPO) or other group purchasing arrangement. An affected Covered Entity must attest to compliance with the GPO prohibition upon initial enrollment and at each annual recertification. These affected Covered Entities may use a GPO to purchase drugs for inpatient use, or to purchase drugs that do not meet the definition of "covered outpatient drug" described above. This prohibition also extends to any pharmacies owned or operated by these types of Covered Entities, and goes into effect upon the Covered Entity's enrollment start date. Newly-enrolled Covered Entities are advised to stop purchasing Covered Drugs via a GPO prior to their 340B start date, but may use up any GPO-purchased Covered Drugs that remain in its inventory after its start date.

HHS encourages Covered Entities and manufacturers to continue their standard business practice of working out errors in GPO purchasing within 30 days of an erroneous purchase through the usual credit and rebill process. New under the Guidance, HHS proposes to extend its "notice and hearing" process to alleged GPO purchase violations by Covered Entities. This would give a Covered Entity an opportunity to demonstrate to HHS that its GPO violation was an isolated error, and not a systemic violation what could lead to termination from the 340B Program.

A Covered Entity that is removed from the 340B Program for a GPO violation must offer repayment to any affected manufacturer for discounts on purchases made after the first date of the GPO violation. If a parent site is removed from the 340B Program for a GPO violation, all child sites and contract pharmacies are also terminated. However, it may be possible for a parent to remain in the 340B Program after a child site GPO violation, if the parent can demonstrate that the violation was limited to the child site. The Guidance clarifies that a violation cannot be considered limited to the child site if the parent and the child use the same drug purchasing account.

Contract Pharmacies

A Covered Entity may dispense 340B drugs through its own pharmacy, or may contract with one or more outside licensed pharmacies (Contract Pharmacies) to dispense 340B drugs to its eligible patients. As permitted under state law, a parent site may contract with a Contract Pharmacy on behalf of its child site, or a child site may contract directly with a Contract Pharmacy. Regardless of the specific arrangement, the Covered Entity and Contract Pharmacy must ensure that the benefit of the 340B Program inures to the Covered Entity, and not to the Contract Pharmacy. The Covered Entity will be responsible for any diversion or duplicate discounts which occur at its registered Contract Pharmacies, including possible repayment to manufacturers.

Before it may utilize a Contract Pharmacy, a Covered Entity must register the Contract Pharmacy with HRSA during regular 340B enrollment periods. In addition to various attestations made during enrollment, the Covered Entity and Contract Pharmacy must have in place a written Contract Pharmacy agreement which lists all involved parent, child and Contract Pharmacy locations, and which contains terms that comply with the PHSA and Guidance. Drug manufacturers will begin shipping 340B drugs to Contract Pharmacies, and Contract Pharmacies may begin dispensing to eligible patients on the Contract Pharmacy's start date listed in the 340B data base. Information regarding audits of Contract Pharmacies will be presented in the next update.

Dykema will present one final update on the Guidance regarding duplicate discounts, record keeping, audit and repayment requirements.

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.

In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.