340B: Guidance and Potential Implications

On January 30, 2017, the OMB website officially designated the 340 B Omnibus Guidance as withdrawn. Manufacturers should continue to follow historical guidance in place until the new administration provides further clarity.

The 340B Drug Pricing Program is a U.S. government initiative that was established in 1992 as part of the Public Health Service Act. Manufacturers are obligated to offer discount prices on outpatient drugs to covered entities as a precursor for their drugs to be covered under Medicaid. Manufactures enter into pharmaceutical pricing agreements (PPA), agreeing that the price charged for outpatient drugs to covered entities will not exceed the 340B Federal Ceiling Price. According to the Health Resources and Services Administration (HRSA), the program was enacted so that hospitals and other healthcare providers could “stretch scarce federal resources,” allowing them to provide care to a broader population of patients.  By purchasing covered outpatient drugs at discounted prices, covered entities can use that savings to treat more individuals.


New Guidance

HRSA has been busy drafting and finalizing legislation.  On January 5, 2017, HRSA published a final ruling, 340B Drug Pricing Program Ceiling Price and Manufacturer Civil Monetary Penalties Regulation. It addressed the calculation of ceiling prices on a quarterly basis and the estimation methodology for new covered outpatient drugs and penny pricing policy, as well the application of Civil Monetary Penalties (CMPs). The CMP Final Rule is effective in March.


Proposed Guidance

There has been proposed omnibus guidance that continues to haunt manufacturers. Not yet finalized, the guidance reiterates current policy, while introducing new definitions to the program. Overall, it is an all-encompassing document, broken down into eight sections, each of which focus on key topics including program, patient, and product eligibility, contract pharmacy arrangements, and program integrity.    


I will describe the three most critical areas of this proposed guidance, which could, if finalized, introduce new program requirements.


 A. Patient Definition Narrows

One of the most noteworthy changes pertains to HRSA’s tightening definition of patient eligibility. The guidance switches from the current three-part definition to a new six-part definition, modifying what constitutes whether a patient is eligible to receive a 340B drug. According to the current guidance, an individual is an eligible patient if:

  • The covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual’s healthcare.
  • The individual receives healthcare services from a healthcare professional who is either employed by the covered entity or provides healthcare under contractual or other arrangements (e.g., referral for consultation). Therefore, the responsibility for the care remains with the covered entity.
  • The individual receives a healthcare service or range of services from the covered entity and it is consistent with the service or range of services for which grant funding or federally-qualified health center look-alike status has been provided to the entity.


Also, the proposed guidance’s six-pronged definition now dictates patient eligibility on a prescription-by-prescription basis if the following criteria are satisfied:


  • The individual receives a healthcare service at a facility or clinic site which is registered for the 340B program and listed on the public 340B database.
  • The individual receives a healthcare service provided by a covered entity provider and is either employed by the covered entity or 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 because of the service described in the previous point.
  • 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.
  • The individual’s patient records are accessible to the covered entity and demonstrate that the covered entity is responsible for care.


Based on these criteria, only prescriptions written at the registered covered entity would deem a patient eligible to receive 340B drugs. Additionally, HRSA further clarified that if healthcare is provided by an entity that has an affiliated arrangement, the individual will not be considered a patient of the covered entity; thus, the patient is not eligible. This seems to eliminate the ability of covered entities to use referrals to treat their patients and provide services under the 340B program.


Lastly, HRSA also clarified that the sole act of dispensing, or infusing a drug, to a patient, without the covered entity encounter, is not sufficient grounds for establishing patient eligibility under the 340B program.  


B. Audits and Record Retention

Although audits are not a new concept to the program, HRSA’s proposed guidance strongly emphasizes it. Under current policy, covered entities are subject to audits from both HHS and manufacturers. However, manufacturers are only permitted to audit covered entities on the basis of diversion and duplicate discounting.


Ultimately, audit compliance is a requirement for covered entities to participate in 340B and failure to do so is grounds for termination. Two new provisions are established. First, covered entities must maintain auditable records for at least five years. This includes terminated covered entities, which would need to maintain records for five years after their termination date. Second, HRSA proposes a more structured notice and hearing process in response to audit findings.


Covered entities have up to 30 days to respond upon written notice of noncompliance.  Failure to respond constitutes noncompliance. The same notice and hearing process applies to HHS’s audits of manufacturers. In addition, the proposed guidance establishes procedural standards for audits of manufacturers.

 C. Increased Oversight of Contract Pharmacies

The proposed guidance supports covered entities use of contract pharmacies to dispense 340B drugs to eligible patients. In addition, covered entities are permitted to contract with multiple contract pharmacies to dispense 340B drugs. However, contract pharmacies alone are not eligible covered entities. HRSA clarifies that registration of a contract pharmacy can only be done by a covered entity. Covered entities must have written contractual agreements with contract pharmacies. In doing so, they must take complete ownership of ensuring contract pharmacies comply with program requirements.


Furthermore, HRSA claims that not all covered entities have “sufficient mechanisms” established to ensure contract pharmacies are complying with program requirements. Therefore, HRSA is clarifying the expectations of contract pharmacy audits, suggesting that covered entities conduct quarterly reviews of each contract pharmacy location. These reviews are an addition to the annual audits of contract pharmacies — as part of the 2010 Omnibus Guidance. Lastly, HRSA is recommending covered entities review and compare their prescribing patterns to the dispensing patterns of the contract pharmacies on a quarterly basis to prevent noncompliance issues. 



HRSA’s proposed omnibus guidance may impact all stakeholders: manufacturers and covered entities alike. The tightening definition of patient eligibility potentially limits the number of individuals eligible to receive 340B drugs. Since diversion is prohibited, covered entities could find themselves in violation of this statute, thus offering repayment to manufacturers for discounts received. Additionally, if they are wrapped up in repayment obligations, this could further diminish savings received by covered entities. Furthermore, program integrity is a key focus of the proposed guidance. For audits, HRSA has established standard procedures and practices for covered entities and manufacturers. Expect stricter scrutiny for all stakeholders.


New Administration: 2017 and Beyond

It is inevitable. Change is coming to U.S. healthcare law, although the extent is still unknown. We have already seen increased oversight of 340B through regulation, including the recent finalization of the 340B Drug Pricing Program, as noted in the beginning of this post. The fate of the Affordable Care Act is uncertain, as well as what policy changes we can expect from the Trump Administration. Since the proposed omnibus guidance is still under review, we don’t know whether it will be finalized or whether it will be scaled back.


Stay tuned.