The 340B drug program allows certain covered entities, to purchase outpatient drugs at discounted prices from pharmaceutical manufacturers. As a result, the covered entities can reach more eligible patients, provide more comprehensive services, and stretch scarce federal resources further and meet the covered entity’s mission and vision.
For all of the benefits it provides, the 340B program is immensely complex. Its legal and compliance landscape can be confusing and time-consuming. Organizations that work with a healthcare legal team may maximize program benefits and protect their 340B eligibility.
While we can’t address 340B in its entirety in a single blog, this is a basic overview of some common issues and concerns we see from healthcare clients that are covered entities.
Why Pricing (Not Rebates) Matters
One of the most important things to recognize about 340B benefits is the language used to describe them. The program provides reduced pricing from drug manufacturers – not “rebates” or “discounts.” There have been several past and current attempts to move 340B drugs into a rebate program.
Why the distinction? In a rebate structure, covered entities would first pay full price for drugs and then submit claims for reimbursement. This would create cash flow strain, delay patient benefits, and add significant administrative burdens.
The 340B Drug Pricing Program, initially established in 1992, was designed to enable safety-net providers to stretch scarce federal resources further. By allowing these eligible healthcare organizations to purchase outpatient drugs at significantly discounted prices, 340B aims to improve access to care for vulnerable and uninsured patients. When operating as a front-end pricing program, where the discounted price is applied at the point of sale, 340B is more effectively able to meet its core mission. This direct application of discounts streamlines the process, reduces administrative burdens for both providers and manufacturers, and ensures that the financial benefits are immediately realized by the covered entities, which can then be reinvested into patient care services. This “front-end” approach minimizes the complexities often associated with rebate-based systems, ultimately fostering greater transparency and efficiency within the program and allowing for a more immediate and tangible impact on patient affordability and access to necessary medications.
Definitions Make (or Break) 340B Compliance
The statutory framework for the 340B program, established under Section 340B of the Public Health Service Act, is remarkably concise and focused. Despite its relatively brief text, this legislation has given rise to one of the most significant and complex drug pricing programs in the United States, impacting a wide array of healthcare providers and pharmaceutical manufacturers. Its brevity belies the intricate regulatory and operational landscape that has evolved around it, making its interpretation and implementation a continuous subject of discussion and, at times, contention. In practice, however, compliance hinges on a web of definitions found in the Federal Register and in the Health Resources and Services Administration (HRSA) interpretations.
While some covered entities have successfully challenged HRSA interpretations, most do not have the resources to take on the federal government, meaning HRSA’s view often governs day-to-day compliance.
For example, one of the most important definitions for covered entities is that of a “340B patient.” The defined rule from the Federal Register seems simple at first glance: a patient of a covered entity is an individual who has an established relationship with the covered entity such as the covered entity maintains records of the individual’s health care; and the individual receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (such as a referral for consultation) such that the responsibility for the individual’s care remains with the covered entity; and the individual who receives health care services from the covered entity receives a health care service that is within the entity’s approved scope of services for which grand funding has been provided to the covered entity. It is important to note that an individual will not be considered a patient under the 340B program if the only health care service received by the individual from the covered entity is the dispensing of a drug.
In reality, proving that relationship, especially in specialized care settings, can be tricky.
Infusion Therapy: A Case Study in Compliance Complexity
Adding infusion services presents unique complexities when navigating the intricate landscape of 340B rules. The challenges arise from various factors, including the precise definition of an “outpatient” setting for 340B eligibility, the proper attribution of infusion drugs to eligible patients, and the accurate tracking of drug administration to avoid diversion. Covered entities must meticulously review their operational workflows, billing practices, and electronic health record (EHR) systems to ensure they align with 340B regulations when incorporating infusion services. This often necessitates a thorough understanding of HRSA guidelines, a robust auditing process, and potentially the implementation of specialized software solutions to manage 340B compliance effectively within an infusion setting. Failure to adhere to these stringent rules can lead to significant penalties, including repayment obligations and exclusion from the 340B program.
While 340B patients are not defined differently based on the type of service, verifying compliance for infusion patients presents unique complexities due to the nature of infusion services. A patient coming in only for infusion therapy – without receiving other services or having an ongoing relationship with the covered entity – may not qualify under 340B definitions as a patient. This is because an individual is not considered a patient under the 340B program if the only health care service received by such an individual from the covered entity is the dispensing of a drug.
The regulations are designed to ensure patients are truly part of the covered entity’s care system, not just accessing it for one isolated service. As such, covered entities must be able to demonstrate that:
- They have an established relationship with an individual, such that the covered entity maintains the patient’s healthcare records.
- The patient receives services from a provider employed by or under contract with the entity.
- The services fall within the covered entity’s scope of services as reported on Form 5A: Services Provided.
- All aspects of the patient definition are met.
For infusion therapy programs, this often means developing comprehensive policies and meticulous workflows. These are essential for confirming patient eligibility before any services are provided, ensuring compliance with regulatory requirements. Furthermore, it necessitates thoroughly documenting the patient-provider relationship, including detailed records of medical necessity, treatment plans, and all services rendered. This rigorous approach not only safeguards the program from potential compliance issues but also ensures that patients receive appropriate and timely care.HRSA maintains that infusion therapy not deemed essential for delivering an approved primary or additional health service (as per Form 5A) would fall outside a covered entity’s scope of project.
340B Audits: Preparing for the Inevitable
If you’re a 340B covered entity, an audit is to be expected.
HRSA audits and manufacturer audits can lead to serious consequences if compliance gaps are found, including repayment obligations and termination from the program.
Audit readiness starts with internal self-audits and ongoing monitoring. Common pitfalls in 340B audits to look closely at with your internal team firm include:
- Accurate record keeping with OPAIS including updated addresses and contact information.
- Incomplete patient records that fail to establish the required relationship.
- Inaccurate inventory tracking, leading to diversion or duplicate discounts.
- Misalignment with Form 5A, where services provided don’t match approved scope.
- Vendor contract issues, especially with contract pharmacies or third-party administrators.
How Smith + Malek Helps Covered Entities Protect 340B Drug Pricing Programs
The 340B program’s benefits can be transformative for communities – we’ve seen that firsthand with our healthcare clients across the Intermountain West and Alaska. But the compliance demands can be overwhelming without the right legal support.
With a deep understanding of healthcare law and the operational realities of running a covered entity, our attorneys provide both proactive compliance strategies and strong defense when issues arise.
Final Thoughts
340B compliance protects a program that delivers real value to underserved patients and communities. By understanding the rules, tracking definitions, and preparing for audits, covered entities can maintain their eligibility and continue to provide vital services. And with Smith + Malek as a partner, healthcare organizations don’t have to navigate that complexity alone.