How Does The 340B Drug Pricing Program Work?
If you work in healthcare finance, pharmacy, or compliance, you have probably heard the number before: $81.4 billion. That is the total value of covered outpatient drugs purchased under the 340B Drug Pricing Program in 2024, a 23 percent increase over the prior year. This is as per the HRSA Office of Pharmacy Affairs.
That figure tends to generate heat in policy circles. However, for the hospitals, health centers, and clinics that depend on the program, the number tells a different story. Section 340B was implemented to assist covered entities that need to maximize the reach of their already stretched budgets. With the savings, they can serve more patients. Also, they can offer more services than their reimbursement rates alone would support.
Here, we explain how the 340B Drug Pricing Program actually works and which organizations are eligible. Also, we will explore Section 340B compliance requirements. Lastly, we will understand the recent developments.
What is Section 340B: The Law Behind the 340B Drug Pricing Program
Section 340B of the Public Health Service Act (PHSA) was enacted as part of the Veterans Health Care Act of 1992. It was signed into law by President George H.W. Bush. It was codified at 42 U.S.C. Section 256b. The program is named for the section of the law that authorizes it.
The statutory requirement is simple. Any drug manufacturer who is participating in the Medicaid Drug Rebate Program will have to agree to a pharmaceutical pricing agreement with the Secretary of HHS (Department of Health and Human Services).
According to the agreement, the drug manufacturer will not be allowed to charge a price higher than the statutory maximum price for any covered outpatient drug. This will be exchanged for Medicaid reimbursement of its drugs.
HRSA's Office of Pharmacy Affairs administers the 340B Drug Pricing Program. The 340B ceiling price is calculated using a formula:
Ceiling Price = Average Manufacturer Price (AMP) - Unit Rebate Amount (URA) |
The resulting price is not publicly disclosed because it is based on proprietary manufacturer data. However, it typically produces discounts of an estimated 20 to 50 percent compared to average market prices.
HRSA's stated mission for the program reflects Congress's intent to enable covered entities to stretch scarce federal resources as far as possible. It also wanted covered entities to reach more eligible patients and provide more comprehensive services. The untapped 340B savings do not go into general revenue. They flow back into patient care.
340B Eligible Organizations: Who Can Participate
Section 340B(a)(4) of the PHSA defines the covered entities that can participate in the 340B Drug Pricing Program. Health Resources and Services Administration (HRSA) groups 340B eligible organizations into two broad categories
Hospital types
Non-hospital types.
Hospital Entity Types
Six hospital categories are eligible to participate in Section 340B. The following table explains the types of hospitals and their 340B purchases, as per the 2024 340B Covered Entity Purchases report by HRSA:
Non-Hospital Entity Types
There are 11 non-hospital categories eligible for the 340B Drug Pricing Program. These are:
Federally Qualified Health Centers (FQHCs) and look-alikes
Ryan White HIV/AIDS program clinics and programs
Community-based homeless clinics
Comprehensive hemophilia treatment centers
Tuberculosis clinics
Urban Indian clinics and Native Hawaiian health centers
State AIDS Drug Assistance Programs
Title X Family Planning Clinics
Black Lung Clinics
Sexually Transmitted Disease (STD) Clinics
Public housing primary care clinics
Here are the non-hospital entity types that made the most 340B purchases in 2024, as per HRSA Office of Pharmacy Affairs:
Non-Eligible Hospitals/Healthcare Organizations
For-profit organizations are not eligible for Section 340B participation regardless of patient population served. Their proprietary control is disqualifying as per the law.
Section 340B Compliance: What the Program Actually Requires
340B Drug Pricing Program participation requires you to be active. HRSA publishes specific program requirements that covered entities must meet to purchase drugs at 340B prices. If you do not comply with the requirements:
Your facility can face corrective action
You will have to repay the discounts availed
Your covered entity might be removed from the program.
Registration and Annual Recertification for 340B Covered Entities
To access 340B pricing for your covered entity, you need to register your entity through HRSA's 340B OPAIS. Then, you will receive a unique 340B identification number that wholesalers and manufacturers use to verify eligibility before completing a discounted sale. HRSA accepts registration quarterly.
Also, you need annual recertification for your covered entity. Also, your facility must notify HRSA immediately when its eligibility status changes. The changes can be in DSH percentage, grant status, or site closure.
Also, you should stop purchasing 340B drugs if your healthcare unit no longer meets the eligibility requirements.
Who Can Avail 340B Drugs?
340B drugs can only be dispensed to patients of the covered entity.
Under HRSA's published patient definition. According to them, an individual qualifies as a patient when:
They have received a health care service from the entity
The entity has established a provider relationship with that individual
A covered entity provider has taken responsibility for the individual's ongoing care.
Diversion and Duplicate Discounts
Section 340B compliance states two prohibitions. Which are
Diversion Prohibition: Covered entities cannot resell or transfer 340B drugs to ineligible individuals. This is the diversion prohibition.
Duplicate Discount Prohibition: Covered entities cannot allow the same drug to benefit from both the 340B discounted price and a Medicaid drug rebate.
To manage both, your facility requires:
Internal controls
Split-billing software
A Medicaid billing election documented in HRSA's Medicaid Exclusion File in OPAIS.
Audit Exposure
HRSA conducts approximately 200 covered entity audits per year. Manufacturers also have independent audit rights.
U.S. Government Accountability Office (GAO) in its recent report confirmed that covered entities with audit findings may be held liable for refunds of discounts obtained. As per GA), between 2022 and 2025, 70 percent of audited entities had at least one adverse finding. Most common ones were related to diversion, duplicate discounts, or OPAIS inaccuracies.
340B Drug Discounts: How the Savings Are Generated and Used
The 340B drug discount is created by statute. You cannot negotiate it individually. HRSA's 340B OPAIS pricing system is the sole official federal source for ceiling prices. It calculates prices based on manufacturer-submitted:
AMP data
CMS rebate data
A commercial data broker feed.
The resulting prices are non-public because some underlying data is proprietary.
The size of the discount varies by drug. For instance, specialty and biologic products having higher WAC list prices usually generate larger gross margins per unit when purchased at 340B prices.
The use of the savings is as important as the generation of the savings. The wording of the law that created the HRSA shows that the program is created to stretch federal dollars farther to cover more patients. In reality, hospitals and health centers spend their 340B margin on providing uncompensated care, pharmacy services in underserved areas, specialty clinics, mental health services, and the services of the uninsured and underinsured.
What Has Changed in the 340B Drug Pricing Program in Recent Years
The 340B Drug Pricing Program has come a long way since the ACA expanded it in 2010, and things have moved even faster since 2020. Here's what covered entities need to know today.
The Contract Pharmacy Landscape
In March 2010, HRSA provided covered entities with approval for dispensing 340B drugs via contract pharmacies. This significantly increased the availability of such medications.
But starting from 2020, there has been growing tension with many manufacturers limiting their willingness to provide any discounts via those contract pharmacies. The reason for that is that HRSA had been providing such guidance, which went beyond its statutory authority. This is according to the manufacturers' view.
This case became even more relevant for the manufacturers since, in 2024, the Supreme Court rejected the doctrine of Chevron deference in its Loper Bright Enterprises v. Raimondo decision. In return, over 20 states adopted laws protecting covered entities.
The 340B Rebate Model Pilot Program
In July 2026, HRSA rolled out the 340B Rebate Model Pilot Program via the Federal Register. Instead of the usual point-of-sale discount, qualifying manufacturers can now pay covered entities back through a rebate after purchase. It's a meaningful shift, and covered entities enrolled in drugs under the Pilot will need to rethink both their purchasing workflow and their OPAIS recordkeeping to keep up.
New CMS Reporting Obligations in 2026
As of January 1, 2026, CMS requires OPPS hospitals to submit their drug acquisition cost information at the NDC level. Further, they must segregate acquisitions made under the 340B program from acquisitions not made under 340B. The mandate originates from the CY 2026 OPPS rule. While the mandate is different from HRSA's compliance program, it overlaps in operational terms.
The Orphan Drug Exclusion for Expansion Entities
One part of 340B that doesn't get enough attention: the orphan drug exclusion. Under Section 340B(e) of the PHSA, drugs with an FDA orphan designation (per Section 526 of the FFDCA) are carved out of mandatory 340B pricing. However, the exclusion is only for four types of expansion entities:
Critical Access Hospitals
Sole Community Hospitals
Rural Referral Centers
Freestanding Cancer Centers
And this exclusion isn't case-by-case. The D.C. District Court settled that in PhRMA v. HHS (October 14, 2015), ruling the exclusion applies no matter what condition the drug is actually being used to treat. As specialty drug use climbs and the FDA's Office of Orphan Products Development keeps expanding designations, this exclusion is only going to matter more for expansion entities' bottom line.
340B Drug Pricing Program Requirements
Administration of the 340B Drug Pricing Program is carried out by the Office of Pharmacy Affairs at HRSA. For covered entities dealing with program rules, the following official sources can be considered authoritative:
A Note on the Orphan Drug Exclusion for Expansion Entities
If your facility is a Critical Access Hospital, Sole Community Hospital, Rural Referral Center, or Freestanding Cancer Center, the orphan drug exclusion under Section 340B(e) affects your purchasing economics in ways that most standard 340B programs are not configured to address. Voluntary manufacturer discretionary pricing remains available for many orphan-designated drugs, but capturing it requires dedicated, ongoing engagement that falls outside routine program administration.
340B Orphan Drug Solutions works exclusively with CAHs, SCHs, RRCs, and Freestanding Cancer Centers on orphan drug revenue recovery. We offer a free 30-minute orphan drug revenue assessment to show you exactly where your facility stands.
