New Opportunities for 340B Program Expansion

By Michelle L. Beard, CPA; Kim J. Ott; and Lisa M. Robbins, CIA
| 2/18/2020
New Opportunities for 340B Program Expansion

Though it comes with its share of risks, the 340B Drug Pricing Program provides many opportunities for today’s eligible healthcare organizations (covered entities). From its inception in 1992, the program has required drug manufacturers that participate in Medicaid to provide outpatient drugs to eligible covered entities at significantly reduced prices. Since then, the program has provided opportunities for 340B participating covered entities to expand their services and manage costs, all while giving vulnerable patients access to needed, but often expensive, services and medications.

Many healthcare providers today are seeking ways to expand their 340B programs even further. Here are several considerations and popular expansion areas for healthcare leaders to keep in mind when deciding whether an opportunity is a good fit.

Covered entity-owned retail pharmacy addition

Opening its own retail pharmacy can be one way for an organization to serve a greater volume of vulnerable patients in its community, which aligns with the 340B program’s main goal. Operation of a covered entity-owned retail pharmacy allows a healthcare organization to realize additional savings in the following ways:

  • Dispensing more 340B drugs due to convenience of the pharmacy on location 
  • Increasing access to medications for patients
  • Offering drug discount programs to limit or remove financial barriers for patients receiving their medications
  • Offering programs such as meds-to-beds (which delivers medications to patients before they are discharged from the hospital) and home delivery

Before opening a retail pharmacy, an organization should assess whether it has the proper infrastructure in place to monitor processes associated with the owned retail pharmacy and the 340B program, such as space, personnel, technology resources, pharmacy licensure, and oversight.

In addition, covered entities thinking about opening an owned retail pharmacy, or those that already have one, should consider dispensing specialty prescriptions if the covered entity provides services that generate these types of medications. Dispensing these types of drugs, which often are higher cost, can provide significant savings opportunities for the covered entity while helping to provide patient access to much-needed medications.

Contract pharmacy services expansion

As part of the 340B program, covered entities can elect to dispense 340B drugs to patients through contract pharmacy services. Through these arrangements, the 340B covered entity signs a contract with a pharmacy to provide such services.1

When looking to expand its contract pharmacy network, an organization first should review where patients are filling prescriptions to understand if adding pharmacies to the network would be appropriate. Next, the covered entity should conduct a thorough financial analysis of the proposed contract pharmacy services agreement and any 340B third-party vendor contract agreement(s). For example, leadership should review money that would be going out (including contract pharmacy dispensing fees, drug costs, and 340B third-party vendor fees) and compare this to money that would be coming in (such as payer reimbursement) to determine the overall financial opportunity associated with expanding contract pharmacy services. This financial picture, and the assessment of patient use, also can help organizational leadership review and understand whether the existing contract pharmacy network is working well and generating a financial benefit or if modifications (for example, termination of pharmacies or contract renegotiation) are needed.

Covered entities also can consider expanding their contract pharmacy services by including specialty pharmacies, which are distribution channels designed to handle drugs that are high cost or require particular storage or handling. Although the overall volume of specialty prescriptions may be less than that of traditional retail, the savings potential associated with each prescription can be significant for covered entities. The previously outlined principles for assessing the value to the healthcare organization can be applied to analyzing the value of adding specialty pharmacies to the covered entity’s contract pharmacy network.


Electronic prescribing, or e-prescribing, is a technology framework that allows physicians and other medical practitioners to write and send prescriptions to a participating pharmacy electronically rather than via handwritten or faxed notes. A covered entity can review existing e-prescribing records to determine whether additional pharmacies can be added to its contract pharmacy network (as discussed in the previous section) or if additional eligible healthcare professionals who are writing prescriptions for the covered entity’s eligible patients could be incorporated into its contract pharmacy program. In addition, if not already doing so, covered entities can consider qualifying prescriptions using the e-prescribing records. This may provide a more compliant method for qualification of prescriptions filled at contract pharmacies and limit the amount of monitoring required.

Thinking of expanding 340B

Thinking about 340B program expansion? Don’t forget to:

  • Include all stakeholders, including leaders from relevant areas such as finance, reimbursement, pharmacy, and legal.
  • Review existing program monitoring, and use that information to make an informed decision. For example, if the organization is struggling with its contract pharmacy arrangements, it might not be a good time to expand that program.
  • Determine risks associated with a potential change and how the organization will monitor compliance. Consider also how the expansion will affect any monitoring the organization performs.

Medicaid carve-in/carve-out decision

As part of the 340B program, covered entities must decide whether they will dispense drugs to their Medicaid patients using 340B purchased drugs (known as “carve-in”) or whether they will purchase those drugs outside of the 340B program (known as “carve-out”). However, covered entities are required to carve out in the contract pharmacy space unless contracted with the state to do otherwise.2 Healthcare providers can make a request to change their carve-in versus carve-out decision to optimize savings opportunities. For example, a covered entity with a significant Medicaid patient population in a state with favorable reimbursement models for 340B drugs could find additional savings opportunities if the covered entity elects to carve in Medicaid patients.

However, before proceeding with such a change, it is wise to hold discussions with all relevant stakeholders, such as individuals from the finance and reimbursement teams, to understand fully the impact any such changes will have on the organization and whether processes are in place to make such changes in compliance with Health Resources & Services Administration (HRSA) and state rules. For example, if the organization wishes to change to carve-in status from carve-out, but it does not have its billing software set up to add any state-required modifiers, it would be placing itself at risk for noncompliance.

Have correct controls in place

Finally, after making changes to its 340B program, including any of these expansion areas, the organization should put in place proper monitoring controls from the outset to help track whether the expansion programs are working successfully. Leadership and involved stakeholders should feel 100% comfortable with the new program, confident that any bugs have been worked out, and certain that it is in compliance with all HRSA rules before moving forward fully.

In addition, due to the complexity involved with making these and other 340B program changes, healthcare organizations should consider partnering with third-party specialists in this area who can answer questions and assist with program expansion opportunities, monitoring, and more.

1. “Contract Pharmacy Services,” Health Resources & Services Administration, October 2018,
2. “Duplicate Discount Prohibition,” Health Resources & Services Administration, September 2017,

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Michelle Beard
Michelle L. Beard
Partner, Financial Services Consulting
Lisa Robbins