Changes Ahead for 340B: What Leaders Need to Know

By Jerry E. Lear, CIA, CISA, and Chris Wasik, CIA, CFE
| 5/16/2018
Changes Ahead for 340B: What Leaders Need to Know

Since its creation in 1992, the 340B Drug Pricing Program has been an integral part of many safety-net providers’ business processes and service delivery models. The program requires drug manufacturers that participate in Medicaid to provide outpatient drugs to eligible covered entities at significantly reduced prices. Savings from the 340B program enable covered entities to stretch federal resources in order to reach a greater number of eligible patients and provide more comprehensive services. However, the 340B program was a hot topic in Washington in 2017, and changes are on the horizon.

Increased Scrutiny From HRSA

The U.S. Health Resources and Services Administration (HRSA) oversees the 340B program and conducts audits of covered entities to confirm compliance with 340B program requirements. In 2017, HRSA contracted with the Bizzell Group to perform these audits. Because several of the Bizzell auditors are licensed pharmacists with extensive 340B experience, a more in-depth audit process is possible. The auditors appear to be using data analytics and their pharmacy knowledge to ask drug-specific questions designed to reveal compliance concerns. Staff within covered entities should be prepared to respond to more comprehensive queries than in the past.

HRSA also is expected to increase the overall number of audits conducted in 2018. While these audits continue to focus mainly on eligibility testing and validation of appropriate Medicaid treatment, entities also should be aware of additional HRSA focus areas, including:

  • Group purchasing organization (GPO) prohibition. In order to be eligible for the 340B program, certain covered entity types (disproportionate share hospitals (DSHs), children’s hospitals, and free-standing cancer hospitals) may not purchase covered outpatient drugs using a GPO. A GPO prohibition violation can result in removal from the 340B program. Auditors appear to be focusing more on this requirement than they did in previous years.
  • Program oversight. This is an important topic for all settings, with a particular focus on contract pharmacy arrangements. Significant penalties can occur if an entity is unable to show adequate oversight – including contracting for annual independent audits – of its contract pharmacies. Entities should document all monitoring procedures within their 340B policies and procedures.
  • Contract with state and local government agencies. An entity must be able to provide a current, executed contract stating that it provides care for individuals who do not fall under the Medicare and Medicaid umbrella. HRSA has increased focus on this area, and noncompliance can result in removal from the 340B program. Entities should work with their legal and compliance teams to make sure they have fully executed contracts in place.
  • Time period of noncompliance. In the past, HRSA would require correction of identified issues only for the time period under review. HRSA now requires that an entity perform additional analysis across the entire population of drug dispensations to determine if there are other similar issues and how far back they existed.
  • Split-billing requests. To further understand an entity’s purchasing process, auditors increasingly are focusing on how the entity is using its split-billing systems. Staff within covered entities should be prepared to answer questions about these processes, including about software used.

Impact of 2018 OPPS Final Rule

The Centers for Medicare & Medicaid Services (CMS) established the 2018 Outpatient Prospective Payment System (OPPS) final rule, effective Jan. 1, 2018. The rule reduces Medicare Part B drug reimbursement by nearly 30 percent for DSH and rural referral center (RRC) 340B covered entities.1 Overall, the rule is expected to result in $1.6 billion in cuts, which will be redistributed across all OPPS hospitals – both 340B and non-340B entities.2 How this redistribution will affect each entity is still unknown.

CMS also issued two required claims-level modifiers that will be used to track 340B claims. The “JG” modifier pertains to entities (DSHs and RRCs) subject to the reimbursement reduction. The “TB” modifier is an informational modifier that CMS will use to track claim data. It applies to all other covered entity types that are paid through OPPS.3

Other Activity Related to 340B

The House Energy and Commerce Committee issued its “Review of the 340B Drug Pricing Program” report on Jan. 10, 2018.4 The report highlights the importance of the program but also notes several weak areas that might bring subsequent changes. These include HRSA’s lack of regulatory authority and the lack of transparency in how entities are using program savings and revenue.

Congress also recently introduced two acts related to the 340B program. The 340B Protecting Access for the Underserved and Safety-Net Entities Act (340B PAUSE Act) (H.R. 4710), introduced in December 2017 by Reps. Larry Bucshon and Scott Peters, seeks to limit the program through a two-year moratorium on new DSH parent registrations as well as child sites for currently registered DSH entities. It also proposes increased data reporting requirements. Helping Ensure Low-income Patients Have Access to Care and Treatment (the HELP Act) (S. 2312), introduced in January 2018 by Rep. Bill Cassidy, also would limit new 340B registrations and increase reporting requirements.

Preparing for Changes: Steps to Take

To prepare for the potential changes that could affect the 340B program in the near future, entities should take these steps:

  1. Increase transparency, including clearly reviewing and documenting where they are using 340B savings and revenue and how it is enabling the entity to better serve its patients and community.
  2. Establish or enhance existing internal monitoring procedures. Conducting periodic mock HRSA audits can help gauge preparedness for an audit and identify areas for improvement within the 340B program. Mock audits can be conducted in-house or with the assistance of a third-party audit firm.
  3. Stay abreast of changes to the 340B program. Changes can occur quickly, so it is essential to be aware and prepared.

1 “CMS Finalizes Nearly 30 Percent Cut in Medicare Part B Drug Payments to 340B Hospitals,” 340B Health, Nov. 1, 2017,
2 “Medicare Program: Hospital Outpatient Prospective Payment and Ambulatory Surgical Center Payment Systems and Quality Reporting Programs,” Centers for Medicare & Medicaid rel="noopener noreferrer" Services, Nov. 13, 2017,
3 Ibid.
4 “Review of the 340B Drug Pricing Program,” U.S. House of Representatives, rel="noopener noreferrer" Committee on Energy and rel="noopener noreferrer" Commerce, Jan. 10, 2018,

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