Updated on: March 28, 2018

340B Drug Update: Good News for Some in the Program

Original story posted on: March 26, 2018

For one health system, staying the 340B drug program makes financial sense.

Working at a large teaching hospital in Pennsylvania recently, I was able to ask the system CFO if he was thinking of giving up on the 340B program in light of the cuts. I was surprised by his answer. He said despite the changes, they were getting over $10 million in benefit from staying in the program in the upcoming year.

How could that be? For providers enrolled in the 340B drug program, the following instruction from CMS looks like the end of the value of being in the program:

“Each separately payable, non-pass through 340B-acquired drug should be billed on a separate claim line with the appropriate 340B modifier. The use of modifier “JG” will trigger a drug payment rate of ASP minus 22.5 percent. The use of modifier “TB” will have no effect on the drug payment rate.”

To see why there is still a benefit to being in the 340B program, you need to understand what is covered by the discount. Generally, the 340B Program includes the following outpatient drugs:

  • FDA-approved prescription drugs;
  • Over-the-counter (OTC) drugs written on a prescription;
  • Biological products that can be dispensed only by a prescription (other than vaccines); or
  • FDA-approved insulin.

A quote from the HRSA website will give you an idea why he said what he did (bold added for emphasis):

Covered entities can purchase 340B drugs for all eligible patients, including patients with Medicare or private insurance, and generate revenue if the reimbursements for the drugs from payers exceed the discounted prices they pay for the drugs. Because the 340B statute does not restrict how covered entities can use this revenue, entities can use these funds to expand the number of patients served, increase the scope of services offered to low-income and other patients, invest in capital, cover administrative costs, or for any other purpose.1 HRSA does not have statutory authority to track how covered entities use this revenue.”

Participating 340B providers will continue to reap the benefits of giving drugs purchased at a reduced cost under the program and billing managed care payers for these drugs. They will also still benefit from the reduced costs for when dispensing 340B drugs to self-pay patients. If the provider has a large amount of charity care patients, this will continue to be a huge benefit to the provider.

You probably noted that I did not include Medicaid in my discussion. The following quote, from a report titled “STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS,” published by CMS in 2011, will tell you why:

“All State Medicaid agencies offer outpatient prescription drug coverage and reimburse retail pharmacies for covered outpatient drugs dispensed to Medicaid patients. Overall, the Medicaid program spent approximately $23 billion on prescription drug coverage in 2009.12 CMS monitors the Medicaid program at the Federal level.”

 Since Medicaid has its own discount program, state programs make sure that providers do not get to “double dip” by taking both the 340B discount and the state Medicaid discount. This means that changes to the 340B program will have very little impact on the cost or reimbursement of drugs to Medicaid patients.

In conclusion, don’t look for the 340B drug program to disappear. Medicare just does not want to pay for their discounted drugs. Considering recent events in the pharmaceutical industry, I wouldn’t look to them to push any bigger changes.


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Timothy Powell, CPA CHCP

Timothy Powell is a nationally recognized expert on regulatory matters, including the False Claims Act, Zone Program Integrity Contractor (ZPIC) audits, and U.S. Department of Health and Human Services (HHS) Office of Inspector General (OIG) compliance. He is a member of the RACmonitor editorial board and a national correspondent for Monitor Mondays.

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