340B Drug Pricing Program

Key facts

Legal basis

Section 340B of the Public Health Service Act

Created by

Veterans Health Care Act of 1992

Administered by

HRSA Office of Pharmacy Affairs

Ceiling price

AMP minus the Medicaid unit rebate amount, calculated quarterly

Registry

340B Office of Pharmacy Affairs Information System (OPAIS)

What is the 340B Drug Pricing Program?

Congress created 340B so that safety-net hospitals and clinics could stretch scarce federal resources and serve more patients. Manufacturers that participate in the Medicaid Drug Rebate Program must sign a pharmaceutical pricing agreement with the Health Resources and Services Administration (HRSA) and offer 340B prices to registered covered entities.

Covered entities include federal grantees such as federally qualified health centers and Ryan White HIV/AIDS clinics, and certain public or nonprofit hospitals that meet disproportionate share and other criteria. The statute does not dictate how entities must use the savings, which is a central point in policy debates.

How 340B works

The program runs on a few core rules:

• Ceiling price: the maximum price is Average Manufacturer Price (AMP) minus the Medicaid unit rebate amount. When the formula yields zero or less, manufacturers generally charge one cent per unit, known as penny pricing.
• Purchasing: entities typically buy through wholesalers at 340B account prices, and manufacturers settle the difference through chargebacks.
• Diversion ban: 340B drugs may only go to patients of the covered entity.
• Duplicate discount ban: a manufacturer should not pay both a 340B discount and a Medicaid rebate on the same drug, tracked for fee-for-service Medicaid through the HRSA Medicaid Exclusion File.
• Oversight: HRSA audits covered entities and manufacturers, and manufacturers can audit covered entities under HRSA guidelines.

Why 340B matters

Growth in 340B purchases, driven largely by hospitals and contract pharmacies, has made 340B a significant gross-to-net line for many brand manufacturers. For analysts, 340B status changes how a hospital or clinic buys and earns margin on drugs, which matters for site-of-care analysis, buy-and-bill economics and account targeting. Medicare Part B claims use a 340B modifier to identify drugs acquired under the program.

The program is contested. Manufacturers have restricted discounts on drugs dispensed through contract pharmacies, states have passed laws responding to those restrictions, and proposals to deliver 340B discounts as after-the-fact rebates instead of upfront prices have also been disputed. In American Hospital Association v. Becerra (2022), the Supreme Court held that HHS unlawfully cut Medicare outpatient payment rates for 340B hospitals without first surveying their acquisition costs.