Introduction: What is 340B?

The 340B drug pricing program was created by Congress in 1992 to provide certain health care providers significant discounts on prescription drugs. The program allows eligible hospitals, clinics, pharmacies, nursing homes, home healthcare agencies, hospices, dialysis centers and long-term acute care facilities (among others) to replenish prescription inventories at prices far below market rates. 

The purpose of 340B programs is to enable eligible providers to create higher margins on prescriptions as a means of filling revenue gaps that are inherent to their business models and patient populations.

The 340B program covers thousands of prescription medications. Many of the hospitals who take advantage of the program’s discounts save millions of dollars a year on their prescription costs. Savings and revenue which, for some of the hospitals ProxsysRx serves, literally make the difference between solvency and closure.

All of which begs the question: Why don’t all 340B-eligible hospitals and health systems take advantage of their legal rights to the program’s savings and discounts? In our experience, the primary reason (by far) is fear of the consequences of non-compliance — coupled with a lack of administrative bandwidth to effectively develop and administer 340B programs.

That’s why we’ve created this comprehensive guide: To give eligible entities all the information they need to understand the 340B program’s requirements — and how to 1) optimize their savings from 340B-elible medication replenishment and 2) improve patient care & satisfaction, while 3) still maintaining full compliance at all times.

Chapter 1: How do 340B programs work?

When a patient receives a 340B-eligible prescription from an eligible entity, the entity is reimbursed for the full market price of the drugs, but pays only a fraction of the drugs’ cost — by replenishing the medication from the 340B catalog.

Who pays the 340B costs?

Manufacturers bear the burden of the cost and reimburse wholesalers for 340B discounts on 340B-eligible medications.

How does the 340B payment process work?

As a covered entity, you send your encounter (visit) data to your TPA, and your pharmacy sends the TPA the prescription data. Your TPA creates a match when it determines that 340B qualification criteria has been met, and your pharmacy then orders from your 340B account to replenish the drugs.

Clients served by ProxsysRx use a proprietary software system, which monitors every prescription their organizations fill, and identifies every eligible prescription generating sufficient savings to justify the time and effort to claim 340B savings. This extra layer of monitoring improves compliance, while hunting-down hidden opportunities for more 340B savings.

ProxsysRx works with each client to determine how aggressively they want to pursue 340B savings. We then maintain comprehensive records on every prescription applied for — always assuring clients of complete compliance.

Which pharmacies can I use for 340B prescriptions?

340B-eligible hospitals can use the in-house (or on-campus) retail pharmacies they own and manage, as well as “contract pharmacies” — which can be both on-campus and off.

You can extend 340B eligibility to contract pharmacies (onsite or off) if they meet HRSA’s requirements — which include the following: Your contract pharmacies must 1) register for the 340B Program, 2) be listed on the 340B OPAIS prior to dispensing 340B drugs on your behalf, 3) not use 340B drugs for Medicaid patients unless you have an arrangement in place with the state.

Covered entities often choose contract pharmacies to dispense 340B drugs to patients for a number of reasons. Many hospitals, for instance, prefer their on-campus retail pharmacies to be operated independently. Some hospitals reach contract pharmacy agreements with multiple pharmacies in their communities, offering their patients more convenience, access and options when filling prescriptions written by their providers.


Understanding requirements for 340B programs


What Are The Requirements For 340B Programs?

Covered entities must meet the following ongoing requirements:

  • Keep 340B OPAIS information accurate and up to date.
  • Register new outpatient facilities and contract pharmacies as they are added.
  • Prevent diversion to ineligible patients.
  • Maintain auditable records documenting compliance with 340B Program requirements.

As a covered entity, it’s also your responsibility to notify drug manufacturers and wholesalers that you plan to purchase drugs at 340B prices. The wholesalers and manufacturers verify your enrollment on the 340B database and must sell their drugs to you — at or below the maximum price determined under the 340B statute.

How do I enroll in the 340B program?

To register, you need a 340B Office of Pharmacy Affairs (340B OPAIS) user account. To get started, visit the 340B OPAIS Registration page, and select the appropriate link toward the bottom of the page — either Grantee Registration or Hospital Registration.

The system should run you through the process from there. It’s important to know, in advance, that you must complete your registration in a single session. Which is why you’ll need to have your latest filed Medicare cost report on-hand while you’re completing the process.

You’ll also you’ll need to enroll your main location first, then add any Child Sites.

What is a 340B Child Site?

HRSA defines a 340B Child Site as an off-site outpatient clinic or location that uses, or purchases, 340B drugs for its patients. In general, “off-site” means a location has a separate physical address than the hospital parent site, and is not located within the main hospital.


Are you ready to enroll in the 340B drug program?


Can my TPA apply for 340B discounts on my behalf?

Yes. However, the work performed by TPAs has emerged as a distinct risk to Covered Entities — a topic we’ll cover, in-depth, in Chapter 3.

NOTE: ProxsysRx is not a TPA. However, we work closely with our clients’ TPAs, holding them accountable and ensuring that they maintain the same standards for 340B compliance that we do. To learn more about how ProxsysRx optimizes 340B savings and revenue, visit this page of our website.

How do 340B programs interact with the MDRP?

The Medicaid rebate program interacts with other programs receiving manufacturer discounts on drugs. As a condition of participation in the Medicaid Drug Rebate program, manufacturers must also participate in the 340B drug-discount program.

340B ceiling prices are calculated to match Medicaid prices, but manufacturers can (but rarely do) provide additional discounts to 340B providers that are not subject to the best price rule.

Safety net providers eligible for 340B discounts can choose whether or not they provide drugs purchased with the program discounts to Medicaid beneficiaries within state guidelines. This may not include drugs paid for by managed-care plans or those dispensed at contract pharmacies, but MCOs also are required to exclude 340B claims from reports they provide to states for rebate purposes.


Understanding requirements for 340B programs


Chapter 2: What entities, patients and drugs are 340B-eligible?

The following hospital categories are eligible for 340B participation

  • Disproportionate Share Hospitals (DSH)  
  • Sole Community Hospitals (SCH)
  • Rural Referral Centers (RRC)
  • Critical Access Hospitals (CAH)
  • Children’s Hospitals (PED)
  • Free-Standing Cancer Hospitals (CAN)

340B eligibility requirements: An overview

In order for hospitals to qualify for the 340B program, they must meet the three requirements below — unless they are Rural Hospitals; in which case, they must meet only the first two requirements.

  1. Government owned or government-controlled.
    In other words, hospitals must be either A) Owned or operated by a state or local government, B) Public or private non-profit corporations which have been formally granted governmental powers by their state or local government, OR C) Private non-profit hospitals under contract with their state or local governments to provide health care services to low-income patients who are not entitled to Medicare or Medicaid benefits.
  2. Disproportionate Share Hospitals.
    Disproportionate Share Hospitals must have an adjustment percentage (or the percentage by which the hospital’s allowable operating costs of inpatient hospital services exceeds the hospital’s target amount) higher than 11.75% for the most recent cost reporting period ending before the calendar quarter involved. Sole Community Hospitals and Rural Referral Centers must have an adjustment percentage of greater than 8 percent.Free-standing children’s hospitals and free-standing cancer hospitals must have a payer mix that gives them a DSH percentage of greater than 11.75 percent. Critical Access Hospitals do not have a DSH adjustment percentage requirement.

    NOTE: A hospital’s DSH adjustment depends on the number of inpatient days of its Medicaid and Supplemental Security Income (SSI) patients.

  3. DSH hospitals, children’s hospitals and free-standing cancer hospitals meeting the first two criteria.
    These hospitals are eligible to participate in the 340B program if they do not obtain covered outpatient drugs through Group Purchasing Organizations (GPOs), or through other group purchasing arrangements. At the same time, hospitals participating in 340B as CAHs, RRCs and SCHs are not subject to the GPO prohibition.

The following types of facilities are included in the 340B program

  • Freestanding acute care general hospitals  
  • Psychiatric hospitals  
  • Long term/continuing care nursing homes  
  • Home infusion therapy centers  
  • Hospices  
  • Federally qualified health centers 
  • Rural health clinics 
  • State mental institutions 
  • Indian Health Service facilities 
  • Federally Qualified Health Centers
  • Community-based rehabilitation programs.


Understanding the six categories of 340B covered entities


Does HRSA Allow 340B Child Sites?

Yes. OPA requires that a covered entity register, as child sites, all offsite clinics, departments and services where 340B drugs are purchased or used, whether or not they are in the entity’s primary campus.

“Offsite” generally means a location has a separate physical address than the hospital parent site. A hospital does not need to register outpatient clinics, departments or services located within the entity's main hospital — but may do so if they appear on a reimbursable line of a hospital's most recently-filed cost report.

Applicable hospitals should ensure that their policies and procedures address qualification of 340B drugs dispensed at Child Sites for services not yet included in the most recently filed Medicare cost report, based on whether those locations meet Medicare provider-based requirements, whether the 340B covered entity maintains the responsibility and records of the patient's care, and whether the health care professionals prescribing 340B drugs have relationship with the 340B covered entity.

Which patients are covered under 340B programs?

Covered entities can dispense 340B-eligible prescriptions to patients who (1) Have established relationships with the covered entity, such that the entity maintains records of the patient's care; (2) Receive care from a professional employed by the covered entity, or under contract or other arrangements (e.g., referral for consultation) with the covered entity, such that responsibility for the care remains with the covered entity; and (3) Receive health services from the covered entity that are consistent with the services for which grant funding has been provided to the entity.

Under these guidelines, an individual is not considered a covered entity’s patient if the only health care service received by the patient from the entity is the dispensing of a drug for subsequent self-administration — or administration in the home setting.

Are 340B prices available for inpatient prescriptions?

No. 340B pricing applies to covered outpatient prescriptions only. Covered entities must therefore maintain appropriate tracking systems to ensure that covered outpatient drugs purchased through the 340B Program are not used for hospital inpatients — and it is the responsibility of health systems in the program to ensure that appropriate safeguards are in place to prevent these diversions.

What prescription drugs are eligible for 340B Savings?

In general, 340B eligibility involves both prescription medications and the covered entity writing the prescriptions. Here’s a simple checklist for determining whether drugs are eligible.

  • As a covered entity, you have a relationship with the patient and maintains records of care.
  • The services are provided by a healthcare professional who is either employed by, or contracted with, you.
  • The responsibility for care rests with you, the covered entity.
  • The services are within the scope of project for grantees and designees.
  • The service provided must be more than just dispensing medication.
  • The drug is administered in an eligible outpatient location or dispensed by one of your 340B contract pharmacies.

General drug exceptions to 340B eligibility

There are a few 340B-eligibility exceptions. These include vaccines and Orphan Drugs (which are, by definition, medications specifically developed to treat rare diseases or conditions — and drugs that have only recently been granted New Drug Status by the FDA).

 Eligible drugs frequently NOT submitted for 340B savings

While narcotic medications are included among 340B eligible drugs, covered entities often choose to exclude them from their programs — due, primarily, to the complexity of procuring these medications for replenishment. That procurement complexity adds-up to significant time-and-effort costs. And as we’ve noted in a previous post, there’s no point in utilizing 340B discounts for medications when the time-and-effort costs exceed the savings generated.

About 340B Orphan Drugs

For the following covered entities, 340B-covered drugs do not include any drugs designated by the Secretary under Section 526 of the Federal Food, Drug, and Cosmetic Act for rare diseases and conditions:

  • Free-standing cancer hospitals
  • Rural referral centers
  • Sole community hospitals
  • Critical access hospitals


What drugs are not eligible for 340B savings?


Chapter 3: Optimizing savings and patient care through 340B

Why 340B programs should be optimized, and not maximized

For the health systems ProxsysRx serves, we pursue a policy of optimizing 340B savings that’s both aggressive and conservative. In other words, we believe you should aggressively pursue 340B savings for every prescription that’s worth pursuing. As we intimated earlier, some prescriptions are simply too low-cost, at market rates, to justify the effort needed to generate nominal savings.

Ideally optimized 340B programs generate a net savings on every eligible prescription claimed.

In our experience, 340B programs can’t be optimized without using proprietary software that keeps detailed electronic records on every prescription that hospitals' outpatient pharmacies (and contract pharmacies) fill, and enables them to easily and instantly produce all the evidence they would ever need to respond to audit requests. 

Two key elements of optimized 340B programs

An unblemished record of performance
Whether 340B programs are managed entirely in-house, or they use outsourced partners for support, they should be managed by people with the skillsets — and, ideally, the track records — to ensure that compliance at all times. It’s worth noting that, since 2013, ProxsysRx has optimized dozens of 340B programs, and not once has a hospital we serve ever been fined for a 340B violation.

The ability to mine your records for 340B-eligible prescriptions: Present and Past.
ProxsysRx’s proprietary software not only identifies current and past reimbursable prescriptions for our new clients, it automatically applies for those reimbursements. Typically, we’ll mine new clients’ prescriptions written up to one year prior to the date we started our service for them.

Get the most from your contract pharmacies

Contract pharmacies are critically important for optimizing the savings and revenue that your health system can generate with well-managed 340B programs. They’re also an important extension of your overall care of, and for, your outpatients. Increasing the number of independent pharmacies serving as contract pharmacies enhances your ability to offer your outpatients options and convenience in filing their prescriptions. 

While you can’t steer patients toward specific pharmacies, you can certainly make your patients aware of the options available to them. Which is why maximizing the number of 340B contract pharmacies in a network should also maximize prescription-replenishment savings and revenue for eligible hospitals; at least in theory. In practice, we’ve found that to be far from the case.

Why do hospitals use 340B contract pharmacies?

In addition to the locational convenience health systems offer their outpatients by having multiple off-site pharmacies, many prefer their on-campus retail pharmacies to be independently owned and operated. 

At the same time, community pharmacies need incentives to serve as contract pharmacies — and that’s where the problem lies with many contract pharmacy relationships. 

Some contract pharmacies cost hospitals more (in fees) than they generate in 340B savings and revenue. What’s more, it’s often not for lack of prescription volume, but rather because those pharmacies simply won’t qualify many 340B-eligible medications. The other problem with many contract pharmacies is that they’re located too far from hospitals, and their patients, to offer them convenience in refilling their prescriptions.

We recognize that the goal of serving a community’s needs (even at a loss) often outweighs your hospital’s objective of maintaining only net-positive 340B contract pharmacy relationships. At the same time, we’ve helped a significant number of health systems replace contract pharmacies with low 340B match rates, with nearby pharmacies that have much higher match rates — generating far better 340B savings for those hospitals. 

What should you avoid in your 340B pharmacy contracts?

The answer is complicated. And it typically applies on a market-by-market basis. In our experience, here are three primary situations you should avoid:

  • Processors who charge on a per-claim basis, coupled with high-volume pharmacies — which will lead to excessive transaction fees for your health system.
  • Contract pharmacies with low participation rates in allowing replenishments — picking and choosing which medications you’ve already approved.
  • Remotely-located pharmacies offering very few of your patients proximity convenience.

At the same time, hospitals can compromise the potential of their 340B programs by setting Dispensing fees set too low — which lowers local pharmacies’ incentive to partner with you in the program. The time-honored business aphorism applies: In order for your contract pharmacy relationships to reach their full potential, your agreements have to create Win-Win situations for both parties.

Audit requirements

In order to maintain 340B compliance, your health system is required to provide oversight of all contract pharmacies — while maintaining auditable records. You’re also expected to conduct annual audits of your contract pharmacies. Audits which should be completed by an independent auditing firm. 

That said, when you authorize ProxsysRx to manage and/or oversee your contract pharmacy agreements, we’ll give you complete support in maintaining auditable records, and conducting your annual audits.


Are your contract pharmacies optimizing your hospital’s 340B savings?


Take full advantage of specialty drug discounts

Specialty drugs, which Medicare defined (in 2019) as any drug costing more than $670 monthly, constituted about 50% of the overall prescription drug market’s expenditures (some $161 billion) in 2020. That’s a 29% increase of total expenditures over 2015. What’s more, according to Acentrus Specialty, 8 out of every 10 new drugs approved by the FDA in 2020 were specialty drugs. All of which makes specialty drugs the fastest-growing, and largest part, of the prescription-drug market.

Benefits of contracting with specialty pharmacies for 340B prescriptions

Where your health system’s mission is concerned, the greatest benefit of contracting with one or more specialty pharmacies is the significantly increased potential for generating savings, and for passing-along those savings to your patients in need. Today, hospitals and other 340B-covered entities can acquire many specialty drugs for as little as 1¢. That happens when a 340B-eligible drug has reached its 100% Medicaid rebate cap. 

For instance, Humirathe top-selling drug in the U.S., reached the rebate cap in 2016. And for years after that, 340B hospitals were able to buy Humira for . Many other specialty drugs — including Epclusa, Harvoni, Imbruvica, Iressa, Gilenya, Revlimid and Stelara — offer 340B discounts of 70% to 100%. 

That said, before you contract with any specialty pharmacy for your health system’s 340B program, it’s important that you’re aware of its insurance relationships. Insurance companies dictate which specialty pharmacies can dispense 340B-eligible specialty drugs, so it’s critical that they are indeed 340B-eligible.

Specialty pharmacies generate fewer 340B-eligible claims, and higher net savings

According to the estimates of several online sources, the average retail pharmacy prescription in 2020 cost $566 per month — while the average specialty drug prescription cost $6,565. AARP estimated, in a September 2021 article, that —in 2020 — the average annual cost for a single specialty medication used on a chronic basis was $84,442. 

340B exposure risk is decreased.

Fewer claims means less exposure to potential audits and compliance claims. What’s more, most specialty pharmacies have dozens, even hundreds, of 340B contract pharmacy relationships; which means that they’re highly experienced, and educated, in maintaining 340B compliance for the covered entities they serve.


How do I take advantage of the 340B program for my Specialty Pharmacy?


Implement a robust Meds To Beds program

Benefits of a Meds To Beds Program: Overview

On a purely practical level, a well-managed bedside prescription delivery program can improve your health system’s pharmacy revenue.

On the human level, Meds To Beds is more than a tangible sign of your system’s care of, and for, the individuals & families you treat. It’s your first line of offense in ensuring that your patients follow the prescription protocols you’ve given them — significantly decreasing the likelihood of their readmission while, in the process, improving your patient’s satisfaction ratings.

In general, health systems fail to implement Bedside Prescription Delivery programs because of the costs of staffing and administrations. In our experience, managing dozens of Meds to Beds programs, those costs are more than offset by the revenues generated. In one Mississippi health system alone, ProxsysRx filled over 18,000 outpatient prescriptions in just 12 months. During that time, the health system’s pharmacy revenues increased 125%, while its readmissions decreased 79%.

How a good Meds To Beds Program works

First, your health system’s retail pharmacy staff must commit to partner with your case management teams, nurses and physicians to implement a cohesive medication treatment plan for your patients who are transitioning back to their lives at home. That commitment means your pharmacy staff must be willing to perform the work necessary to enhance your health system’s current efforts, ensuring that there is never any additional burden placed on your hospital’s providers, nurses and staff.

Next, when prescriptions are delivered bedside to discharging patients, you should be sure to have a pharmacist available to help patients —reviewing both prescription protocols and any issues that could compromise your patients’ willingness (or ability) to maintain compliance with their prescriptions after they leave the hospital.

Once a patients accepts his or her prescriptions, and understands how to maintain compliance, your meds to beds program should pass-off the job of continued patient contact to a readmission risk reduction program.

How Meds To Beds benefit 340B drug programs

Bedside prescription delivery is arguably the most effective method for ensuring that your patients’ prescriptions are captured before they leave your care.

Put another way, your Meds To Beds program should not only support health systems' mission of maximizing patient care, compliance and satisfaction while minimizing readmissions, it should serve as a funnel for directing patients into 340B programs. This role is particularly significant, when you consider the aggressive efforts manufacturers have undertaken to minimize the number of pharmacies that 340B-eligible hospitals can utilize in their 340B programs.

Many manufacturers have launched initiatives to limit their support of eligible entities’ contract pharmacies to one per hospital. They’ve also fought HRSA’s efforts to overturn those limits, through protracted legal battles. It goes without saying, those manufacturers have determined that legal battles are less costly to them than upholding their legal obligation to support 340B drug discounting.

How Meds To Beds benefits your 340B patients

Patients entered into your 340B program “funnel” generally receive superior ongoing professional care and support, after they are discharges. And as we’ve mentioned elsewhere, hospitals with multiple contract pharmacies in their networks offer patients more choices, and convenience, in filling their prescriptions. 

Statistical research conclusively demonstrates that two primary factors driving patient non-compliance are lack of education and understanding, and lack of access (both in terms of financial means and proximity) to pharmacies. Which is why many hospitals with 340B programs supplement their Meds To Beds programs by offering home delivery and prescription discounts to financially-challenged patients. Those health systems generally agree that the costs of additional patient support are more than offset by the benefits of superior post-discharge care — not to mention the savings that come with reducing readmissions.

According to a 2020 study published by Frontiers In Public Health, Meds To Beds programs have been shown to significantly reduce 30-day hospital readmissions — particularly among older adult patients. 


How Meds To Beds Can Drive Your 340B Savings


Understand, and overcome, your TPAs’ limitations

TPAs play a critical role in 340B programs. It’s their job to “match” prescription claims from your contract pharmacies with patient data hospitals provide, and then to determine the eligibility of those claims. Without a match, a prescription cannot be qualified for 340B eligibility and savings. 

Your TPAs’ ability to accurately qualify your 340B claims is only as reliable as the information you provide. Their systems simply aren’t configured to monitor and spot mismatches in that data. 

340B data mismatches can be extremely trivial.

One of the most common reasons 340B claims are misqualified — particularly with Medicare patients — is inconsistency in Date Of Birth entries. Patient Name mismatches is another common cause of misqualifications. For instance, you may have a patient registered as Bob in your pharmacy system and Robert on your hospital’s system. 

That said, the more complex 340B programs are, the higher the likelihood that their automated data submission process will be flawed. Which will naturally lead to missing EHR encounters and missed 340B savings opportunities — quite possibly substantial savings opportunities. 

Technology often causes 340B data mismatches

The process of monitoring 340B programs is especially difficult when multiple TPAs are involved. Every TPA’s proprietary software system’s interface is unique. Making matters even more complicated, the reporting structure within TPA portals vary significantly from one to another. We’ve found that health system 340B personnel often spend an inordinate amount of time simply trying to access the information that they need — which leaves them far too little time to proactively take advantage of that information.

How common are TPA 340B misqualifications?

Mismatch rates vary from health system to health system, but we can say this with confidence: If you have a 340B program already in place, it’s probably a lot higher than you think. 

One of the health systems ProxsysRx serves employs three experienced and well-trained full-time professionals — who monitor their system’s 340B claims on a full-time basis. And yet, during the first six weeks ProxsysRx supported their efforts, we provided matching justification for, and generated $187,000 worth of, 340B savings that they’d overlooked.


How and why TPAs misqualify 340B prescriptions.


Chapter 4: Maintaining 340B compliance

A 340B Program Compliance Checklist

As we noted in a previous post, the number one reason eligible hospitals don’t take advantage of their legal right to participate in the 340B program is lack of administrative bandwidth to ensure full compliance. 

340B is complicated. That’s why so many covered entities have full-time employees monitoring their 340B programs. At the same time, for the clients whose 340B programs we manage, ProxsysRx performs all the duties of a dedicated full-time employee — and more.

Below is a condensed checklist of safeguards to help ensure successful, compliant 340B programs:

  • Develop written policies & procedures that detail all of your 340B-related decisions.
  • Make sure your 340B policies are compatible with your hospital’s existing policies and procedures. 
  • Double-check your provider files — as well as your National Drug Code crosswalks and the location maps for all of the contract pharmacies in your network — for accuracy.
  • Utilize software that’s been specifically developed to ensure that your 340B information is always up-to-date.
  • Support your providers, by giving them complete information on 340B program regulations, and how those regulations work with your hospital’s existing policies & procedures.
  • Conduct regular inventory-management and tracking-procedure checks, to ensure that you’re always in compliance.
  • Establish a Governance Committee to meet regularly and review your health system’s 340B program.
  • Conduct regularly-scheduled internal audits of your health system’s 340B program.

This final point is worth repeating: Routine self-audits are critical to ensuring your program’s compliance. 

Carve-in or Carve-out?

When you register your health system for the 340B program, you’ll be asked to choose whether you’ll Carve-In or Carve-Out Medicaid fee-for-service (FFS). This decision will apply to all of your Medicaid FFS patients. Choosing Carve-In means that you’ll be using 340B-priced medications with your Medicaid FFS patients. Choosing Carve-Out means you will not use 340B-priced medications with your Medicaid FFS patients.


How Can You Ensure 340B Compliance, and What are the Consequences of Non-Compliance?


Avoid 340B Double-Dipping

The 340B program does not allow you to take advantage of 340B discounts and Medicaid drug rebates for the same drugs. That’s the practice known as Double Dipping, and as a covered entity, you need to maintain compliance mechanisms that prevent duplicate discounts.

Preventing 340B double-dipping begins at enrollment

If you decide to Carve-In Medicaid fee-for-service, you’ll be required to list each Medicaid state where plan to bill, as well as the corresponding billing number(s) you’ll list on your bills to those states. It follows, then, that you shouldn’t list any Medicaid states where you plan to carve-out.

Common 340B Errors to avoid in your program

Poor tracking. You must be able to prove that every drug purchased on your 340B account is administered to an eligible patient from an eligible point of service. 

Lack of contract pharmacy oversight. As a covered entity, you’re ultimately responsible for monitoring your contract pharmacies and ensuring that they maintain compliance with all 340B program requirements. If you identify any diversions or duplicate discounts, it’s your responsibility to notify the Office of Population Affairs (OPA) of the violation — and offer a remedy.

Having too many contract pharmacies. The general rule of thumb in establishing your contract pharmacy network, is to limit your pharmacy contracts to five. Having more than five can raise red flags with regulators. OIG has generally found that health systems simply aren’t successful in effectively overseeing more than that number of contract relationships.

Failing to register all of your Child sites. Even if you have child site inside your hospital, or another registered primary facility, you should register it. That way, if you ever need to move that child site, you won't have to go through the registration process — and that typically takes six to nine months, sometimes an entire year. And during that time, you will not be legally entitled to 340B savings .


What is 340B Double-Dipping, and How Can You Avoid It?


340B Audits: Overview. Consequences of non-compliance.

On average, HRSA conducts roughly 200 340B audits every year. Moreover, by law, manufacturers are legally entitled to audit covered entities, 1) to verify their compliance with patient definitions, and 2) to prevent duplicate discounts. However, manufacturer audits require HRSA approval, which is why they are extremely rare. 

What to do if your internal 340B audit uncovers instances of non-compliance

You are required to notify any impacted manufacturers and offer steps to resolve issues directly with them and their wholesalers. You’ll also need to send the HRSA Office of Pharmacy Affairs a written reports of any compliance issues. 

CHAPTER 5: 340B ESP & Manufacturer Restrictions, And How To Overcome Them

340B ESP. Why it’s wrong, and how hospitals can deal with it.

According to its website, “340B ESP allows 340B covered entities and pharmaceutical manufacturers to work collaboratively to resolve duplicate discounts.” In truth, the “service” is nothing less than a brazen, unlawful ploy by the drug manufacturers to evade the discounts they are legally obligated to offer eligible entities — by placing extraordinary, and unnecessary, reporting burdens on hospitals submitting claims for 340B savings.

Consider, for starters, the site’s Terms Of Use. In unedited form, that legal document runs 5798 words in length, more than 16 pages in Times New Roman with 1.5 line-spacing. Based on the average adult’s speed in reading technical documents (62.5 words per minute), that means 340B ESP’s terms of use alone will take the average reader nearly 93 minutes to complete. 

A brief history of 340B ESP

First, and this cannot be stressed highly enough, the 340B ESP platform is not a government entity. It is an online portal operated by Second Sight Solutions — a privately owned corporation with no legal right to impose its restrictions on covered entities.

That said, manufacturer restrictions began almost immediately after the Health Resources and Services Administration (HRSA) admitted publicly that, for all practical purposes, it has no real power to enforce 340B program guidelines. And so, in June 2020, Merck became the first manufacturer to engage 340B ESP’s services, when it issued a letter “requesting” that 340B Covered Entities begin submitting a broad range of 340B contract pharmacy claims data, as part of what it called an “integrity initiative.” 

In the letter, Merck threatened recipients who declined to cooperate that it “may take further action to address 340B program integrity, which may include seeking 340B program claims information in a manner that will be substantially more burdensome for covered entities.” Not surprisingly, several other manufacturers soon followed in lockstep. 

The reporting burdens 340B ESP place on covered entities

Under the requirements set down by Drug Manufacturers, covered entities must report, twice monthly, their covered prescriptions from every TPA with whom they work through the 340B ESP platform. Because every TPA uses a different technology interface, this further complicates matters for already overworked covered entity employees. 

Making matters worse, TPAs working under the normal, legally-prescribed reporting requirements (outside 340B ESP) routinely misqualify 340B-eligible prescriptions. Moreover, most TPAs serving 340B entities lack the reporting capabilities to adequately deal with the website’s requirements.

How effective has 340B ESP been in enabling drug manufacturers to avoid their legal obligations? In the first year of its relationship with 340B ESP, Merck alone saved $2 billion. Money which would, in most cases, have been used by eligible hospitals to better serve patient populations who are uninsured and/or financially incapable of paying for their own healthcare needs.

How we help eligible entities deal with 340B ESP

If you choose to report claims data to 340B ESP, we’ll report on your behalf. Then we’ll track 340B price reinstatement — by manufacturer, and by contract pharmacy — whether you work with a single contract pharmacy or several. We’ll also verify 340B price availability for each manufacturer, in each wholesaler account, for each of your contract pharmacies. Once verified pricing has been restored along the entire chain, we’ll work with your TPAs to”turn-on” replenishment — and ensure they replenish appropriately. 

Reporting to 340B ESP

  • We track per-manufacturer / per-pharmacy 340B price eligibility according to what 340B ESP says it is.
  • We verify in each 340B account — by Consumer Pricing and by manufacturer — if what 340B ESP says is accurate
  • Once we’ve verified each data point, we’ll notify your TPAs of newly restored pricing — then ensure that the TPAs request new price files from wholesalers.
  • Once your TPAs have 340B prices, we’ll order the 340B eligible drugs. 


340B ESP. Why it’s Wrong, And How Hospitals Can Deal With It.


Manufacturers Accelerate 340B Drug Pricing Restrictions

There’s an old saying that it’s better to be rich and guilty than poor and innocent. It’s a sad truth that accurately reflects the current state of 340B manufacturer restrictions, particularly in the wake of the January 30, 2023 decision by the U.S. Court of Appeals for the Third Circuit — which was largely in favor of three drug companies that have imposed harmful limits on safety-net hospitals’ access to 340B drug pricing program discounts.

Novartis introduced a new tactic to evade its 340B obligations.

Novartis was the first drug manufacturer to limit 340B-eligible contract pharmacies to those located within 40 miles of the covered entity will have pricing added. On the surface, this doesn't seem particularly problematic. After all, most, if not all, of a typical 340B-eligible health system’s retail contract pharmacies — from chains to local independents — will still get 340B pricing. The problem with the 40-mile radius, and Novartis knows this, has to do with covered entities’ specialty pharmacy networks.

The number of specialty pharmacies across the country is significantly lower than the number of retail pharmacies — and a significant percentage of those pharmacies serving 340B-eligible entities are located outside that 40-mile radius.

On top of that, there’s the difficulty of 1) getting PBMs to allow pharmacies to dispense for their patients — other than the pharmacies health systems own — and 2) getting manufacturers to allow purchase of their specialty meds. 

Johnson & Johnson’s 340B restrictions are even worse. 

On February 15, 2023, one of the clients we serve forwarded us a 10-page, 3914-word letter they’d received from Johnson & Johnson. After they’d spent who-knows-how-many-hours poring over the contents, their email included one genuinely troubled question: “Does this mean what we think it means?” 

The key restriction to which they were referring (which Johnson & Johnson announced would go into effect starting March 7, 2023) was as follows:

If a non-grantee Covered Entity does not have an in-house pharmacy, such Covered Entity may designate a single contract pharmacy location registered on the HRSA OPAIS database for delivery of 340B-priced covered outpatient drugs listed on Attachment A if (I) the Covered Entity provides limited claims data with respect to that contract pharmacy location and (ii) that single contract pharmacy location is within 40 miles of the Covered Entity parent site. 

In plain English, Johnson & Johnson is telling 340B covered entities, that — starting March 7 — they can designate only one pharmacy as a contract pharmacy in their networks, AND that the pharmacy has to be located within 40 miles of the health systems’ campuses.

Consider the implications for 340B-eligible patients who lack easy access to transportation: For all practical purposes it means that, unless that single contract pharmacy offers prescription-shipping services, they’re either NOT getting their medication — or they’ll be incurring significant personal costs to fill their prescriptions.

Novartis and J&J’s 340B restrictions violate a core patient right: Choice.

One of the most critical benefits our vast pharmacy industry offers is patient choice. By law, patients have the right to choose where they get their medications. Covered entities don’t dictate which pharmacies their patients use. But when restrictions limit 340B pricing to one contract pharmacy (much less zero pharmacies), they’re robbing patients of their legal right to choose.

Taking their cue from J&J, three more manufacturers — AbbVie, Amgen and GSK — promptly imposed 40-mile restrictions on 340B-eligible claims for their drugs. Then, on April 3rd, Novartis implemented its own “single pharmacy within 40 miles” policy. 


Brick Walls: Dealing With 340B Manufacturer Restrictions.


The impact of 340B ESP and other manufacturer restrictions 

Making the rich richer at the expense of the poorest and most vulnerable.

For 340B covered entities operating without the sophisticated processes and advanced analytical software developed by ProxsysRx, the impact of manufacturer restrictions has been devastating. 340B revenues for numerous covered entities has plummeted. Many of those Disproportionate Share Hospitals rely on 340B revenue to help fund their Uncompensated Care and Community Outreach efforts. And when it comes to uncompensated care, the term Disproportionate Share couldn’t be more accurate. In 2020, the average 340B DSH hospital provided $38 million in uncompensated care — while the average non-340B hospital provided just over $14 million (Source: 340B Health).

Dealing daily with 340B ESP and other manufacturer restrictions 

For ProxsysRx’s 340B team, those restrictions have meant an exponential increase in the time involved to ensure that the health systems we serve get the 340B savings to which they’re legally entitled. One ProxsysRx 340B Program Specialist estimates that he spends the first two to three hours of every day on the job dealing with manufacturer restrictions — and that’s before he’s submitted the first 340B claim for one of the three covered entity accounts he manages. 

Manufacturers currently imposing unlawful 340B program price restrictions

As of April 10, 2023, there were 21 manufacturers imposing restrictions — either through 340B ESP, or independent of the website:

Of the 21, nine currently promise to uphold one of the standards established by the 340B program requirements — enabling covered entities to designate and supply claims for an unlimited number of contract pharmacies. That means 12 (or 57%) of those manufacturers are in open violation of the intent of the 340B program — which was created to enable covered entities to use multiple contract pharmacies. 

How ProxsysRx Maintains A Constantly Updated List Of 340B Covered Drugs

Describing just one aspect of his own experience with manufacturer restrictions, one ProxsysRx 340B Program Specialist notes, “Because they're so ambiguous, and changing so quickly, the restrictions force our team to review all of the restricted NDCs on a daily basis. Every pharmacy we serve has to be cognizant of all 1628 restricted NDCs when submitting prescriptions for 340B savings. And when a covered entity has multiple contract pharmacies, there's a multiplier in tracking NDC's and prescriptions.

“Each one of our team members is literally monitoring thousands of prescriptions on a daily basis. Which is one reason our team continues to grow. And why our clients have benefited so greatly from the 340B PRO software we developed, which has enabled us to grow and scale. Because you don't just have a single question needing answers on every prescription. It's not just about the NDC's. There are layers and layers of problem-solving involved.”


Manufacturers Accelerate Pace And Severity Of 340B Drug Pricing Restrictions


Why specialized software is essential for successful 340B programs

Without specialized software solutions, the average 340B-eligible health system would likely need a dozen (or more) full-time employees, just to monitor their prescriptions to maximize savings and revenue. ProxsysRx rolled-out the first version of 340B Pro in 2021, and we are constantly updating and adjusting it to deal with the ever-evolving challenges manufacturers introduce in their 340B pricing restrictions. 

340B programs need TPA support, but TPAs are far from perfect

TPAs’ systems are not especially adept at monitoring and spotting provider / entity data mismatches — which are common occurrences in 340B programs. Nor do their fees generally incentivize them to improve their performance. That’s why helping health systems minimize data mismatches at the source is so critical to maximizing 340B drug pricing program savings for a covered entity — and why meeting that challenge is a core component of our 340B software and service package.

The critical role humans play in the 340B software equation

Over the years, ProxsysRx’s software has identified tens of millions of dollars’ worth of 340B-eligible prescriptions missed by the TPAs working with hospitals we serve — as well as with their contract pharmacy networks. However, software solutions alone can’t reliably requalify prescriptions for 340B drug pricing program savings — for the simple reason that there has to be a reason each prescription is requalified. And that reason has to be defensible, if it’s challenged in audit. 

All of that requires 340B program management experience and judgment on a prescription-by-prescription basis, and as anyone familiar with technology can tell you, Artificial Intelligence still has a long way to go in solving problems that require nuance and insight.

What’s more, when a prescription is coded incorrectly by a provider — which happens regularly in even the best-managed 340B programs — it creates what amounts to a Domino Effect of incorrect coding throughout the step-by-step process of submitting that prescription for reimbursement. Without the intervention of an experienced 340B manager, TPA software can actually make the situation even worse. 


Specialized Software Can Only Do So Much For 340B Programs


How ProxsysRx overcomes manufacturer restrictions on 340B pricing.

As much as we’d love to report that we’ve discovered the proverbial magic bullet for piercing manufacturer barriers to optimizing 340B cost savings and revenue, we can’t. Our process starts with an in-depth assessment of a health system’s current 340B-program status (assuming the health system has an active 340B program). Once we’ve conducted that analysis, we work with the health system’s 340B professionals to develop strategies for improvement in every area of its program. ProxsysRx’s 340B support team then implements software-supported processes for auditing missed opportunities. 

For most of the hospitals we serve, ProxsysRx’s team also provides hands-on support in managing their 340B programs.

The good news is, our process is producing results. And while those results vary from system to system, one of the small rural hospitals we serve has seen a monthly net savings increase of more than 900% over their historical averages since manufacturer restrictions were implemented. 

Below are the seven key elements of our process.

1. Establish communications between health system providers and their outpatient pharmacies.

With manufacturer restrictions, it’s more important than ever that health systems have onsite pharmacies partnering with them to capture as many 340B-eligible prescriptions as possible — in part, to ensure that savings stay within the system, thereby enabling them to pass-along those savings to patients.

  1. Upload only the 340B Data required, and NO MORE.

As with every aspect of our program, we learned this lesson through experience: When working in the 340B ESP platform, you should never upload any data that isn’t absolutely required by the platform. We submit the NDCs only from manufacturers that impose 340B pricing restrictions that are contingent on data reporting.

  1. Do NOT trust 340B ESP to restore prices on its promised scheduling.

340B ESP says health systems should expect a period of 10 days, post-submission, for 340B prices to be restored in their contract pharmacies’ 340B wholesaler accounts. In reality, that rarely ever happens within 10 days — if at all. Which is why ProxsysRx has implemented a system for checking all NDCs, in all of our health systems contract pharmacies’ 340B accounts, before instructing their TPAs to restart processing on any restricted NDCs. 

4. Do NOT trust 340B ESP price restoration, period.

Health systems cannot assume that any 340B price restorations they have will actually be honored. Manufacturers working with 340B ESP routinely, and unilaterally, decide that the purchases made for arbitrarily-selected contract pharmacies are more than the dispenses. 

5. Don’t assume that submitted eligible dispenses result in 340B price access.

Some manufacturers now require you to submit 340B purchase data reports within 45 or 60 days from dispense — or they disallow those submissions. Although ProxsysRx mines clients’ 340B-submission records for eligible prescriptions missed by their TPAs, the time frame is tight with these arbitrary, fraudulent manufacturer requirements — and thus far, we’ve yet to develop a workaround for dealing with them.

6. Don’t assume that 340B ESP will be compatible with your TPAs’ reports.

If you’re thinking you can simply pull reports from your TPAs and upload them, when submitting your own reporting to 340B ESP, think again. Most TPAs’ reports require significant modifications first. Your own uploads have to be submitted in 340B ESP’s exactingly-specified format, and every upload has the potential for reporting errors that can cause failures. 

7. Don’t bother asking 340B ESP for help.

Nobody working with 340B ESP — or the manufacturers — has ever helped our team when our clients didn’t receive the 340B prices to which they’re entitled, even when months have passed since we made data submission. 


Seven Steps For Overcoming 340B ESP and Other Manufacturer Restrictions on 340B Pricing


340B Hospitals Should Build Their Own Specialty Pharmacies

For 340B-eligible hospitals dealing with increasingly squeezed bottom lines, an in-house specialty pharmacy offers enormous savings and revenue potential. Some covered entities generate as much as 600% in specialty pharmacy revenue from 340B drugs as they do in traditional retail / outpatient pharmacy 340B revenue.

That said, there is a workaround for 340B hospitals forced to select a single pharmacy for manufacturers’ 340B pricing — and it’s legal in many states. Hospitals can operate specialty pharmacies alongside their retail pharmacies. As long as the two operations are physically in their own spaces (working under separate Pharmacists-In-Charge), and there is no procedural, functional or personnel overlap between the two. 

The not-so-good news for 340B hospitals is: Opening a specialty pharmacy is extremely challenging — particularly given the effort required just to get access to purchase specialty meds, and then to get “In Network” with PBMs. Payers and manufacturers control the players in Specialty, so newcomers need significant support and guidance navigating the process. That doesn’t even account for how hard it is accrediting and running a Specialty Pharmacy. 

How ProxsysRx makes it easier for 340B hospitals 

We guide the health systems we serve through the process steps that they’re required to participate in. Fortunately, those steps tend to be the least burdensome in the process. We handle the rest of the process — painstakingly documenting everything we do, and reporting back to the health systems at every critical step.

Ensuring your specialty pharmacy’s success

Internal operations are only part of the formula for a specialty pharmacy’s success. Which is why we seek inclusion from all PBMs in a health system’s area. We go in-network, securing cooperation and approval from all the major local insurers, for the PBMs that their patients are covered by. What’s more, we seek access from the drug manufacturers for what they’re prescribing — even the most egregiously restrictive manufacturers. 

Eliminating 340B hospitals’ out-of-pocket costs to build specialty pharmacies 

The title of a previous post we’ve published on the topic says it all: “Use Your Hospital’s Retail Pharmacy 340B Drug Savings To Build A Specialty Pharmacy.” ProxsysRx works with the hospitals we serve to improve their 340B programs’ revenue — then implement strategies to fund specialty pharmacies from that improved revenue. The goal is that the hospitals ultimately pay nothing out of pocket to build and manage their own specialty pharmacies.

Finally, unlike other entities in the specialty managed services space, ProxsysRx supports health systems’ Specialty Pharmacies as a white label service (operated under their corporate brands). As a pharmacy partner, we’ve never lost a health system — for the simple reason that we do what’s necessary to ensure they’re happy with our partnership. 

The good news for covered entities about 340B 

Despite the numerous unlawful restrictions imposed on eligible entities by manufacturers — including alliances with 340B ESP — ProxsysRx continues to benefit the health systems we serve. In fact, since we launched our 340B program, we’ve generated more than $435 million in 340B savings and revenue.

With ProxsysRx’s help, many of the health systems we serve are using those savings to fulfill their missions to serve their communities’ poor and uninsured patients. 

ProxsysRx is here to help, if you have questions. 

There are so many ways to optimize your 340B drug program savings and benefits — overcoming manufacturer restrictions while maintaining compliance at all times. For more information on any aspect of developing and managing a successful 340B program, contact Howard Hall. C: 214.808.2700 |