Federal 340B Drug Pricing Program

The federal 340B Drug Pricing Program (340B) allows certain entities that serve low-income patients to receive discounted outpatient drugs from manufacturers that participate in Medicaid and Medicare. Manufacturers must sell covered drugs at 340B prices for Medicaid to cover the drugs. The 340B Program is intended to enable covered entities to use federal resources to improve accessibility and provide more comprehensive services.

Program Overview

Section 602 of the Veterans Health Care Act of 1992 added Section 340B of the Public Health Service Act. Under 340B, entities receive a 20 to 50 percent discount on the average manufacturer price of outpatient prescription drugs. Note: While manufacturers report drug price data to the Health Resources and Services Administration (HRSA), an agency of the U.S. Department of Health and Human Services (HHS), ceiling prices are proprietary and are not disclosed to covered entities.

The covered entities may generate revenue under 340B if patients’ insurance reimbursements exceed the 340B price. Federal statutes do not restrict how covered entities may use this revenue. A survey by a group representing safety-net hospitals showed that covered entities use the revenue to reduce patients’ drug costs, provide uncompensated care, and maintain broader hospital operations, among other things. (Medicare Payment Advisory Commission, “Report to the Congress: Overview of the 340B Drug Pricing Program,” May 2015) HRSA’s Bureau of Primary Health Care, however, requires a federally qualified health center (FQHC) to use 340B discounts for community benefits to fulfill grant requirements and remain a covered entity.

According to the HRSA, which administers 340B, the discounts enable covered entities “to stretch scarce federal resources as far as possible” to fund safety-net care.
While both the 340B Program and the Medicaid Drug Rebate Program offer rebates to states, states cannot order “duplicate discounts” or stack rebates on prescription drugs.

Eligible Entities

Section 340B(a)(4) of the Public Health Service Act specifies the entities that are eligible to participate in 304B. These include qualifying hospitals, FQHCs, and specialized clinics. Entities are not allowed to divert drugs purchased at the 340B price to an individual who is not a patient of the entity.

Contract Pharmacies

Some covered entities enter into agreements with non-affiliated retail pharmacies, known as contract pharmacies, to provide services to patients. Contract pharmacies are not included in the federal 340B enacting statute. However, in 2001, HRSA created Alternative Methods Demonstration Projects (AMDP), which allow certain covered entities to contract with retail pharmacies. This allowed entities without in-house pharmacies to dispense medications under 340B. In 2010, HRSA expanded 340B to allow covered entities to contract with multiple pharmacies without going through the AMDP process.

Covered Entities in Kansas

As of September 2024, there are 937 eligible covered entities in Kansas, according to HRSA’s 340B Office of Pharmacy Affairs Information System. Note: A covered entity could have multiple sites of operation.

Active Covered Entities in Kansas

Entity Type	Amount
Disproportionate Share Hospital	220
Critical Access Hospital	193
Sexually Transmitted Diseases	163
Tuberculosis	150
HRSA-funded Health Center	95
Family Planning – Title X	55
Sole Community Hospital	35
Children’s Hospital	12
Ryan White Part C (formerly Title III)	4
Rural Referral Center	4
Health Center Program Look-alike	3
Ryan White Part B (formerly Title II)	1
Ryan White Part B (formerly Title II) ADAP Rebate Option	1
Urban Indian Health Center	1

Disproportionate Share Hospital (DSH). DSH facilities are general acute care hospitals that serve a disproportionate number of low-income patients and automatically qualify for 340B annually if they provide enough inpatient services to Medicaid and low-income Medicare beneficiaries.

Critical Access Hospital (CAH). CAHs are designated by the Centers for Medicare and Medicaid Services (CMS). The CAH designation aims to reduce the financial vulnerability of rural hospitals and enhance health care access by maintaining essential services in rural communities.

Sexually Transmitted Diseases (STDs). STD clinics are non-hospital facilities that diagnose and treat STDs. These clinics are supported by the STD Control Program overseen by the Centers for Disease Control and Prevention.

Kansas Legislation

The enacted 2024 Appropriations bill, SB 28, included language directing the Office of the Attorney General to enforce the Kansas Consumer Protection Act against manufacturers interfering with the acquisition of 340B drugs by certain pharmacies for FY 2025 and FY 2026.

U.S. Supreme Court Case

On June 15, 2022, the Supreme Court of the United States ruled in American Hospital Association v. Becerra that the reimbursement payment rates set by HHS for drugs obtained under 340B in calendar years 2018 and 2019 were unlawful. The Court’s decision was based on HHS’s failure to conduct a required survey of hospitals’ acquisition costs before implementing the rates.

To remedy the invalidated payment system, CMS finalized a rule on November 2, 2023, to offer one-time, lump-sum payments to covered entities as compensation for the difference in rates. The rule went into effect on January 8, 2024.