In 1992, Congress passed a law, adding Sec. 340b to the Public Health Service Act, creating a new program intended to support hospitals serving a disproportionate share of indigent patients. The 340b program is administered by the US Dept. of Health and Human Services (HHS), specifically through the Office of Pharmacy Affairs at the Health Resources and Services Administration. The program is administered through rulemaking and various forms of guidance, although HRSA’s ability to issue rules for this program has been challenged, and remains in question.


340b is a voluntary program, but...

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The 340b program has grown exponentially

  • 20,000 covered entities – up from 8,000 in 1998;
  • Covered entities have consolidated with other hospitals, and incorporated physician office specialties with high-cost drugs (e.g., oncology practices)
  • A hospital outpatient department can build an off site facility (known as a “Child site”) and qualify to receive 340b discounts at that facility, for those patients, (if child site is on outpatient department’s Medicare cost report)
  • Contract Pharmacy Arrangements -- the Covered Entity no longer has to dispense 340b drugs through its own pharmacy; it can contract to have drugs dispensed through one or more retail pharmacies, so long as it retains legal title.

Most importantly, 340b discounted drugs were originally a marginal consideration (4-6% of sales) – Now, 340b sales can exceed 25% of manufacturer sales volume; AND FOR ULTRA ORPHAN MANUFACTURERS, THIS PERCENTAGE CAN BE EVEN HIGHER, CREATING PRICING RAMIFICATIONS FOR THEIR PATIENTS.

The Office of the Inspector General and MedPAC, among others, have concerns:

  • Do manufacturers charge more for drugs to afford all the 340b discounts they have to provide?
  • What if patient’s 20% copay actually exceeds the acquisition cost?
  • Savings not passed on to patients