Key Terms

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Key Acronyms

Key Terms

08 Modifier: The National Council for Prescription Drug Programs (NCPDP) D.0 standard for retail pharmacy claims submission allows a pharmacy to indicate that the submitted ingredient cost of the drug that is the subject of the claim is the drug’s 340B price. Some payers require the pharmacy to indicate that a drug’s 340B price was the method by which the billed ingredient cost was calculated by submitting the value “08” in field 423-DN, also known as the Basis of Cost Determination field. The 08 Modifier might be used in conjunction with the 20 Modifier. Based on NCPDP’s description of the 08 value, the modifier applies only to Medicaid and other state or federal programs when required by law or regulation and when the payer and/or processor has communicated a unique Bank Identification Number (BIN) or BIN/Processor Control Number (PCN) combination to distinguish these from other lines of business that do not meet the requirement.

20 Modifier: The NCPDP D.0 standard for retail pharmacy claims submission allows a pharmacy to indicate that a drug that is the subject of the claim was purchased through the 340B program. Some payers require the pharmacy to identify 340B drugs by including the value “20” in field 420-DK, also known as the Submission Clarification Code (SCC) field. The 20 Modifier might be used in conjunction with the 08 Modifier.

340B Ceiling Price: The maximum price that manufacturers can charge 340B covered entities for CODs. The 340B discount is calculated using the Medicaid rebate formula and is incorporated into a statutorily-defined maximum sales price rather than paid as a rebate. The 340B ceiling price is the AMP reduced by the URA. Because the formula sets a minimum rebate amount for URA, covered entities receive a guaranteed discount off of AMP of 23.1 percent for most brand-name prescription drugs, 17.1 percent for brand-name pediatric drugs and clotting factor, and 13 percent for generic and over-the-counter drugs. Brand-name drugs are entitled to an additional discount if the manufacturer’s best price for a drug is lower than the AMP minus 23.1 percent for that drug or if the price of the drug has increased more quickly than the rate of inflation. Manufacturers must offer greater discounts on generic drugs if the price of a generic drug increases more quickly than the rate of inflation. Covered entities are free to negotiate discounts that are lower than the maximum allowable statutory price (i.e., sub‐ceiling prices). The Affordable Care Act (ACA) amended § 340B(d)(1)(B)(i)(I) of the 340B statute to require the Secretary to develop “precisely defined standards and methodology for the calculation of the ceiling price.” On January 5, 2017, HRSA issued a final rule implementing the statutory methodology for calculating ceiling prices and its statutory authority to impose CMPs on manufacturers, as well as formalizing its long-standing penny pricing policy. HRSA originally announced that the final rule would be effective March 6, 2017, but subsequently delayed the effective date several times. In September 2018, 340B Health, three other national hospital groups, and three hospital systems filed a lawsuit against HHS over the continued delay of the implementation of the ceiling price and CMP rules. HHS responded by agreeing to make the rules effective January 1, 2019. The ceiling price rule can be found at 42 C.F.R. § 10.10 (2019) and the CMP rule can be found at 42 C.F.R. § 10.11 (2019).

The ACA also required that HHS make 340B ceiling price data available to covered entities through a secure website. On December 20, 2018, the plaintiffs in the lawsuit against HHS filed an amended complaint asking the court to compel HRSA to comply with this ceiling price database requirement. HRSA responded by launching the secure website on April 1, 2019. HRSA updated the ceiling prices on July 1, 2019 and will continue to update the website on a quarterly basis. Access is limited to a covered entity’s authorizing official and primary contact and the covered entity is not permitted to share the data with outside parties. Pricing information available through the website was initially limited to the basic unit price, but was expanded on July 1, 2019 to include the following additional data elements: (1) the raw ceiling price (AMP minus the URA); (2) the package size; (3) the case “pack” size; and (4) the package adjusted price (raw ceiling price multiplied by the package size and case pack size).

340B Coalition: A coalition of 13 organizations representing the broad range of providers and programs that participate in 340B. The 340B Coalition hosts two annual 340B conferences and advocates on behalf of covered entities. 340B Coalition members include: 340B Health; America’s Essential Hospitals; Children’s Hospital Association; HIV Medicine Association; Hemophilia Alliance; National Alliance of State and Territorial AIDS Directors; National Association of Community Health Centers; National Association of Counties; National Coalition of STD Directors; National Family Planning & Reproductive Health Association; National Health Care for the Homeless Council; National Rural Health Association; and Planned Parenthood Federation of America.

340B Health: A non-profit organization based in Washington, D.C. that represents the interests of 340B hospitals. 340B Health has been advocating on behalf of the hospitals in the 340B program since the program’s inception over 30 years ago. It has over 1500-member hospitals and provides a range of advocacy, educational, and technical assistance services. More details about 340B Health can be found at www.340bhealth.org or by contacting Shane Kelley at shane.kelley@340bhealth.org or 202-552-5864.

340B ID: The unique identification number assigned by OPA to each 340B parent or child site.

340B OPAIS: HRSA implemented the 340B Office of Pharmacy Affairs Information System (340B OPAIS) in September 2017, changing how covered entities provide and edit information in the 340B database. OPAIS can be found at https://340bopais.hrsa.gov/home. The user guide applicable to the 340B OPAIS can be found at https://www.hrsa.gov/sites/default/files/hrsa/opa/publicuserguide.pdf.

340B Prime Vendor Program: The 340B statute requires HHS to create a “prime vendor” program (PVP) for the entities participating in the 340B program. The prime vendor’s key responsibilities are to negotiate prices below the 340B ceiling price and to provide distribution services for covered entities that choose to join the program. Regarding the latter responsibility, the prime vendor works with a variety of wholesalers in the distribution of pharmaceuticals. The prime vendor also provides a variety of other “value‐added” services, including providing technical assistance to covered entities, operating a 340B educational program called 340B University, offering 340B-related online training and certification programs, and offering discounted pricing on non-340B drugs and non-COD products such as vaccines. HRSA has a contract with Apexus to serve as the prime vendor. Participation in the PVP is optional for covered entities, though they may be able to access more favorable prices through the PVP than they would on their own.

340B Program: The federal drug discount program authorized under section 340B of the Public Health Service Act and established by Congress under the Veterans Health Care Act of 1992 (Public Law 102-585, § 602, codified at 42 U.S.C. § 256b). The 340B program requires drug manufacturers to enter into pharmaceutical pricing agreements (PPAs) with the HHS Secretary, under which manufacturers agree not to sell CODs above 340B ceiling prices to covered entities.

“5i” Drug: An inhaled, infused, instilled, implanted, or injected drug. Manufacturers, when identifying “5i” drugs, are not required to use any particular FDA file or publication. Manufacturers rely on different sales transactions than they use for other drugs in their product line when calculating the AMP for their “5i” drugs that are not generally dispensed through a retail community pharmacy. Effective April 1, 2016, CMS adopted new procedures for identifying “5i” drugs and calculating “5i” AMP. See definition of “Average Manufacturer Price.”

Actual Acquisition Cost (AAC): The price that a provider pays for a drug. Effective April 1, 2017, CMS established by regulation – commonly referred to as the COD rule – a requirement that all state Medicaid programs apply AAC-based reimbursement rates to CODs that are used in the retail setting and covered by Medicaid FFS. The COD rule directs states to base reimbursement for Medicaid FFS retail drugs on AAC rather than an estimated acquisition cost, including for 340B drugs.

Administrative Dispute Resolution (ADR): A binding process mandated by the ACA to resolve certain disputes under the 340B program. The ACA stated that the purpose of the ADR process is to resolve (1) claims by covered entities that they have been overcharged for CODs by manufacturers; and (2) claims by manufacturers, after a manufacturer has conducted an audit, that a covered entity has violated the prohibitions against diversion or duplicate discounts. The ACA directed the Secretary to issue a final rule to implement an ADR process by September 20, 2010. HRSA issued a proposed rule in August 2016 that would establish a panel of government officials charged with reviewing and adjudicating disputes brought by covered entities and manufacturers. The rule was withdrawn effective August 1, 2017. The final regulation establishing the ADR process was issued on December 20, 2020 and became effective January 13, 2021, although it is unclear when the process will be fully implemented. Adding further uncertainty to the future of the ADR process, drug manufacturers have filed lawsuits challenging the legality of the ADR final rule.

In November 2022, HRSA proposed a rule that would make changes to the ADR. HRSA said it was proposing revisions to the ADR after encountering policy and operational challenges with the current process. Comments were due to HRSA on January 30, 2023. Since October 2023, HRSA’s Final ADR rule has been under review at the Office of Management and Budget (OMB). There is no deadline by which the final rule has to be released.

Apexus Generic Portfolio: Hospitals subject to the GPO prohibition are generally required to pay higher, non-GPO prices – typically at WAC – for CODs that do not qualify or are otherwise unavailable for 340B pricing. For example, HRSA prohibits the use of GPO drugs for 340B-ineligible outpatients. To reduce the cost of these non-340B, non-GPO drugs, Apexus, which runs the 340B PVP, has contracted with wholesalers to give participating hospitals access to the wholesalers’ non-340B generic source price files. Hospitals can purchase drugs in this Generic Portfolio without violating the GPO prohibition.

Apexus, Inc.: The organization under contract with HRSA to administer the 340B PVP. Apexus is responsible for negotiating discounts below the 340B ceiling price for those covered entities that choose to participate. Apexus also contracts with wholesalers to distribute 340B pharmaceuticals and with other vendors to provide value-added services. It also provides educational and technical assistance services.

Authorizing Official: Per HRSA, an authorizing official is someone who represents and confirms that he/she is fully authorized to legally bind a 340B covered entity into a relationship with the federal government and has knowledge of the practices and eligible programs at that site. This would be the person responsible for and to whom the federal government would contact about compliance issues, integrity evaluations, and audits. Covered entities are required to provide HRSA with their authorizing official’s name and contact information upon enrollment and to update this information when any changes are made. The authorizing official is also responsible for completing OPA’s online registration process for 340B covered entities and outpatient facilities as well as the annual recertification process. The authorizing official must also approve contract pharmacy registrations. For many entities, this is the grantee of record or the Clinic Director based upon federal funding streams. For hospitals, it is required that someone of the Chief Executive Officer/Chief Financial Officer/Chief Operating Officer/President/Vice President level perform this role. The authorizing official of a 340B hospital must also be the authorizing official for all the hospital’s child sites.

Average Manufacturer Price (AMP): The average price paid to the manufacturer for the drug in the United States by wholesalers for drugs distributed to retail community pharmacies and retail community pharmacies that purchase drugs directly from manufacturers. Congress established AMP as part of the Medicaid drug rebate statute to facilitate calculating Medicaid rebates. AMP was originally defined as the average price paid to manufacturers by wholesalers for the retail class of trade. Congress changed the definition in 2010 as part of the ACA. The new definition went into effect on April 1, 2016 pursuant to the COD rule issued by CMS on February 1, 2016. The COD rule excludes from AMP calculations 340B prices and sales to non-retail purchasers, as well as several other prices. CMS also clarified, among other things, how manufacturers should identify and report AMP data for all CODs, including “5i” drugs. Further discussion on AMP can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf. Besides being used to calculate manufacturer rebates owed to state Medicaid agencies, AMP is a key component of the formula used to calculate the 340B ceiling price. Manufacturers are required to report AMP to CMS on a quarterly basis. AMP is also used to determine the federal upper limit on Medicaid pharmacy reimbursement for multiple-source drugs.

Average Manufacturer Price True-Up: An AMP true-up occurs when a manufacturer corrects a previously stated AMP for a specific time period and then, in order to remedy the misstated AMP, adjusts the amounts owed to states under the MDRP and the discounts owed to covered entities under the 340B program. When a misstated AMP results in covered entities being overcharged, the manufacturer is expected to offer refunds on the relevant CODs purchased by covered entities at the incorrect price during that period. The same is true when a manufacturer restates its best price.

Average Sales Price (ASP): A measure of a pharmaceutical’s price that is equal to a manufacturer's sales to all purchasers divided by units sold. The ASP calculation excludes sales, such as 340B purchases, that are excluded from the Medicaid “best price” calculation as well as sales at nominal charge, as applied by the Secretary. ASP was first used by government prosecutors in settlements with several pharmaceutical manufacturers to ensure more accurate price reporting. Under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA), Congress adopted the ASP system to replace average wholesale price for reimbursing outpatient drugs in non-hospital settings under Medicare Part B, beginning in 2005. CMS decided several years ago to also use ASP to set reimbursement for drugs administered in hospital outpatient departments under Part B.

Best Price: See “Medicaid Best Price.”

Bizzell US: See “HRSA 340B Program Audits.”

Black Lung Clinic: One of the categories of non-hospital covered entities that participate in the 340B program. Black lung clinics receive funding from the HRSA Black Lung Clinic Program to seek out coal miners, whether they are currently involved in mining or not, and provide services to them and their families, regardless of their ability to pay. Services may be provided either directly by grantees or through formal arrangements with appropriate health care providers, such as FQHCs, hospitals, state health departments, mobile vans, and clinics. The Black Lung Clinic Program is authorized by Section 427(a) of the Black Lung Benefits Act (codified at 30 U.S.C. § 901).

Cancer Hospital: See “Free-Standing Cancer Hospital.”

“Carve-In”: A commonly used term to describe a covered entity’s decision to use 340B discounted drugs for its Medicaid patients that meet the 340B program’s patient definition test. To avoid having a state Medicaid program request rebates on 340B drugs given to Medicaid FFS patients, covered entities that carve-in Medicaid FFS must inform OPA of that decision and submit to OPA all numbers that they use to bill Medicaid FFS for 340B drugs. OPA publishes these billing numbers in a Medicaid Exclusion File (MEF), which is posted on the agency’s website. State Medicaid agencies use the file to identify claims that should be excluded from the states’ rebate requests to manufacturers. In a February 2013 policy release, HRSA directed covered entities that elect the carve-in option to work with their states to develop a mechanism for notifying the state when 340B drugs are not used for a Medicaid patient so that the state can seek rebates on such drugs. The Medicaid Exclusion File identifies carve-in entities by billing number, so if a covered entity has clinics or owns pharmacies with different Medicaid provider numbers, some clinics or pharmacies might be able to carve-in while others carve-out. HRSA and CMS have both clarified that the purpose of the Medicaid Exclusion File is to help covered entities, states, and manufacturers avoid duplicate discounts specific to Medicaid FFS, not Medicaid managed care. Some states have issued rules or policies stating that the state considers the Medicaid Exclusion File to apply to both Medicaid FFS and Medicaid MCO claims. In January 2020, CMS issued an Informational Bulletin describing state options for avoiding duplicate discounts. The Informational Bulletin can be found at https://www.medicaid.gov/federal-policy-guidance/downloads/cib010820.pdf. 340B Health is aware some states require covered entities to carve-out.

“Carve-Out”: A commonly used term to describe a covered entity’s decision not to use 340B discounted drugs for Medicaid patients if such drugs are subject to a potential Medicaid rebate claim by a state Medicaid agency. Unless the entity chooses to carve-in as described above, the covered entity must purchase any COD subject to a Medicaid rebate outside the 340B program. If a covered entity decides not to buy its Medicaid drugs at 340B discounts, state Medicaid agencies are free to request manufacturer rebates on such drugs without creating a duplicate discount problem for the manufacturers. If a covered entity has clinics or owns pharmacies with different Medicaid provider numbers, some clinics or pharmacies might be able to carve-out while others carve-in. 340B Health is aware some states require covered entities from carve-in.

Centers for Medicare & Medicaid Services (CMS): The federal agency within HHS that administers the Medicare and Medicaid programs, including the MDRP, Medicare Part B, and the Medicare Part D prescription drug benefit. CMS and HRSA are sister agencies within HHS.

Change Requests: The process by which covered entities can update or modify the information listed in their entries in OPAIS. HRSA implemented OPAIS in September 2017 which resulted in fundamental changes to how covered entities provide and edit information in the database, including the change request process. Hospitals should be aware that in late March 2023, HRSA expanded the options of the change request function to allow hospitals to submit changes to the information listed on OPAIS from their most recently filed Medicare cost report (MCR) on a rolling basis rather than during the annual recertification process only. Hospitals will be able to submit changes to their DSH adjustment percentage, control type, classification, and MCR reporting period and filing date. The OPAIS user guide can be found at https://www.hrsa.gov/sites/default/files/hrsa/opa/publicuserguide.pdf.

Chargeback: A commonly used term to describe the method by which wholesalers typically process 340B and other discounts with manufacturers. A wholesaler purchases a drug from the manufacturer at WAC, sells the drug to a 340B covered entity, and then requests that the manufacturer pay it for the difference between the drug’s WAC and 340B price. This last step of the process is known as a “chargeback.” Wholesalers typically use the chargeback process whenever they sell a drug at a price lower than what they paid for it.

Children’s Hospital: Hospitals that meet criteria set forth under section 1886(d)(1)(B)(iii) of the Social Security Act, codified at 42 U.S.C. § 1395ww, and whose patients are mostly under age 18. (Regulations are available at 42 C.F.R. § 412.23(d)). To qualify for 340B, a children’s hospital must (1) be owned or operated by state or local government, a public or non-profit corporation which is formally granted governmental powers by state or local government, or a private nonprofit institution with a contract with state or local government to serve non‐Medicare and non‐Medicaid low‐income patients, (2) certify that it will not purchase CODs through a GPO and (3) have a payer mix that would result in a Medicare DSH adjustment percentage greater than 11.75 percent if it were a DSH hospital. HRSA uses “PED” (for pediatric) as the entity type identifier for children’s hospitals listed on OPAIS.

Child Site: A hospital offsite clinic/department/service that is eligible to participate in the 340B program because it is an integral part of a 340B hospital, as evidenced by the fact that it is reimbursable under Medicare cost reporting rules (i.e., meets the provider-based requirements of CMS). Offsite generally refers to a location that has a physical address separate from the hospital parent site and is not otherwise located within the four walls of the main hospital.

Civil Monetary Penalty (CMP): A fine that HHS is authorized under the ACA to levy on manufacturers that knowingly and intentionally overcharge a covered entity for 340B drugs. Under the CMP regulation, the HHS OIG has the authority to assess a CMP of $5,000 for each instance in which a manufacturer “knowingly and intentionally” charges higher than the 340B ceiling price. The regulation can be found at 42 C.F.R. § 10.11 (2019).

Comprehensive Hemophilia Treatment Centers (HTCs): One of the categories of non-hospital covered entities that participate in the 340B program. HTCs are specialized treatment centers that receive funding from HRSA to provide complete hemophilia services through multidisciplinary teams that focus on preventing complications of the disease. HTCs treat a wide variety of bleeding disorders, primarily inherited bleeding and clotting disorders. HTCs offer evaluations by hemophilia experts as well as consultations with other specialists as needed. The program is authorized under section 501(a)(2) of the Social Security Act (codified at 42 U.S.C. § 701).

Contract Pharmacy: A pharmacy that, in accordance with HRSA guidelines, contracts with a covered entity to dispense 340B drugs to eligible patients on the covered entity’s behalf, which can include pharmacies owned by a hospital system, as well as independent or chain pharmacies in the community. Contract pharmacy relationships must be governed by written agreements and be registered with HRSA. For contract pharmacy arrangements, the covered entity purchases the 340B drug from a wholesaler or manufacturer, and the wholesaler or manufacturer bills the entity for the drug purchased but ships the drug to the contract pharmacy. The contract pharmacy serves as the covered entity’s dispensing agent and is paid a dispensing fee for the services associated with filling each prescription dispensed. Contract pharmacies may provide other services for covered entities and typically serve as the entity’s billing agent. HRSA’s contract pharmacy guidelines allow a covered entity to contract with multiple contract pharmacies, regardless of whether the entity has an in-house outpatient pharmacy. Contract pharmacies must carve-out Medicaid FFS, unless the covered entity, the contract pharmacy, and the state Medicaid agency have an arrangement to prevent duplicate discounts and have notified OPA of the arrangement. HRSA’s contract pharmacy service guidance can be found at 75 Fed. Reg. 10,272 (March 5, 2010), https://www.gpo.gov/fdsys/pkg/FR-2010-03-05/pdf/2010-4755.pdf.

Starting in 2020, several pharmaceutical manufacturers have implemented policies refusing to offer, or placing conditions on, 340B pricing for drugs dispensed at contract pharmacies. Multiple drug companies have filed lawsuits challenging HHS’ position that the agency has the authority to require drug companies to sell covered entities drugs at or below the 340B ceiling price when the drugs are dispensed at contract pharmacies.

Covered Entity: The statutory name for a facility or program eligible to purchase discounted drugs through the 340B program. Covered entities include six categories of hospitals and eleven categories of non-hospitals. Hospitals that may qualify as covered entities include disproportionate share hospitals, freestanding children’s and cancer hospitals, rural referral centers, sole community hospitals, and critical access hospitals. Hospitals that fall within one or more of these categories must satisfy additional eligibility criteria to participate in the program. See the definition for each type of hospital for eligibility criteria. The non-hospital facilities and programs include Federally Qualified Health Centers; Federally Qualified Health Center “look-alikes;” state-operated AIDS drug assistance programs; the Ryan White Comprehensive AIDS Resources Emergency (CARE) Act programs; tuberculosis, black lung, family planning, and sexually transmitted disease clinics; Comprehensive Hemophilia Treatment Centers; public housing primary care clinics; homeless clinics; Urban Indian clinics; and Native Hawaiian health centers. Federally Qualified Health Center “look-alikes” are the only group of providers among the non-hospital facilities and programs that are not federal grantees or sub-grantees.

Covered Outpatient Drug (COD): The category of drugs for which manufacturers must give 340B discounts to covered entities under the 340B program. The 340B statute defines “covered outpatient drug” by referencing the definition found in the Medicaid rebate statute at section 1927(k) of the Social Security Act (codified at 42 U.S.C. § 1396r-8(k)).

Critical Access Hospital (CAH): A rural hospital with 25 or fewer inpatient acute care beds that furnishes 24‐hour emergency services, either with its own staff or on‐call staff and has an average annual length of stay of 96 hours or less. The CAH may have up to 10 additional rehabilitation or psychiatric beds. A CAH must be located either more than 35 miles from the nearest hospital or more than 15 miles in areas with mountainous terrain or only secondary roads or be state‐certified as a “necessary provider” of health care services to area residents. The CAH must be located in a jurisdiction with a Medicare Rural Hospital Flexibility (FLEX) Program. CAHs are eligible for the 340B program if they are owned or operated by state or local government, a public or non-profit corporation which is formally granted governmental powers by state or local government, or a private nonprofit institution with a contract with state or local government to serve non‐Medicare and non‐Medicaid low‐income patients. CAHs are defined under Medicare law. Their requirements can be found at 42 C.F.R. §§ 485.601–485.647.

Dispensing Fee: The charge for the professional services provided by a pharmacist when dispensing a prescription, including overhead expenses and profit. Medicaid and most direct-pay prescription drug insurance plans use dispensing fees to pay pharmacists for their dispensing activities and other professional services. Dispensing fees do not include any payment for the actual drugs being dispensed. Effective April 1, 2017, state Medicaid agencies must pay a “professional” dispensing fee based on the pharmacist’s professional services and costs to dispense the drug product to a Medicaid beneficiary. This new requirement was established in the CMS COD rule and can be found at 42 C.F.R. § 447.578(d). “Professional dispensing fee” (PDF) is defined at 42 C.F.R. § 447.502 to include the pharmacist’s time in checking the computer for information about an individuals’ coverage, performing drug utilization review and preferred drug list review activities, measurement or mixing of the COD, filling the container, beneficiary counseling, physically providing the completed prescription to the Medicaid beneficiary, delivery, special packaging, and overhead associated with maintaining the facility and equipment necessary to operate the pharmacy. CMS acknowledged in the rule that 340B covered entities have unique circumstances that may warrant a different PDF than for non-340B providers (81 Fed. Reg. 5171, 5317 (Feb. 1, 2016)).

Disproportionate Share Hospital (DSH): A category of hospitals that are defined under section 1886(d)(1)(B) of the Social Security Act (codified at 42 U.S.C. § 1395ww with regulations at 42 C.F.R. § 412.106) and eligible to participate in the 340B program if they meet certain 340B eligibility criteria. A DSH serves a disproportionately large share of low‐income patients. The Medicare and Medicaid programs provide additional payments to DSHs to compensate them for the higher costs attributable to treating low‐income patients. The Medicare DSH adjustment is a percentage add‐on to a hospital’s prospective payment and is based on the share of Medicaid patients and patients entitled to both Medicare Part A and supplemental security income that the hospital serves on an inpatient basis. To qualify for the 340B program, a DSH must have a Medicare DSH adjustment percentage of more than 11.75 percent. A DSH that is designated by CMS as an RRC or SCH may participate in the 340B program if it has a Medicare DSH adjustment percentage of 8 percent or higher and satisfies the other eligibility criteria applicable to those hospital types.

Drug Repackager: A business that takes drugs out of their original manufacturer stock bottles and puts them into new packaging. Some repackagers specialize in “pre-packed” drugs; these are small quantities of drugs that are ready to dispense, either in bottles or unit-of-use packaging, with pre-printed labels.

DSH Adjustment: See “Medicare DSH Adjustment Percentage.”

DSH Hospital: See “Disproportionate Share Hospital.”

Duplicate Discount: An instance where a manufacturer gives both an upfront 340B discount to a covered entity at the time of purchase and a post-purchase rebate to a state Medicaid agency. Both the 340B and Medicaid rebate laws protect manufacturers from duplicate discounts. Under federal law, a covered entity must comply with the prohibition against Medicaid FFS duplicate discounts in one of two ways: (1) “carve-out” Medicaid drugs from its 340B purchases or (2) submit to OPA all numbers that it uses to bill 340B drugs to Medicaid FFS, so that states can exclude claims billed under those numbers from their rebate requests.

For most of the history of the MDRP, states could only collect rebates on Medicaid FFS drugs. The ACA expanded the MDRP to include Medicaid managed care drugs but excluded 340B drugs from the expansion. HRSA and CMS have both clarified that the purpose of the Medicaid Exclusion File is to help covered entities, states, and manufacturers avoid duplicate discounts specific to Medicaid FFS, not Medicaid managed care. In April 2016, CMS issued a Medicaid managed care regulation requiring, among other things, that states direct MCOs to identify and exclude 340B claims from the utilization reports they provide to states for Medicaid rebate collection purposes, or instead require covered entities to submit 340B claims data directly to the state or the state’s claims processor before the state submits invoices for Medicaid rebates to manufacturers. If a state chooses the former option, the state should specify in its contracts with MCOs which tools MCOs can use to exclude 340B claims. The agency noted several potential tools that could be used by MCOs, including requiring covered entities to submit identifiers for 340B claims and assigning a unique BIN/PCN/Group number to the MCO’s Medicaid line of business and requiring providers to bill 340B claims to that BIN/PCN/Group. In January 2020, CMS issued an Informational Bulletin describing state options for avoiding duplicate discounts. The Medicaid managed care rule can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-05-06/pdf/2016-09581.pdf and the Informational Bulletin at https://www.medicaid.gov/federal-policy-guidance/downloads/cib010820.pdf.

Federally Qualified Health Center (FQHC): One of the categories of non-hospital covered entities that participate in the 340B program. FQHCs are community-based health care providers that receive funds from the HRSA Bureau of Primary Health Care to provide primary care services in underserved areas. They must meet a stringent set of requirements, including (1) offering a comprehensive package of primary care benefits, (2) providing care on a sliding-fee scale based on the FQHC patient’s ability to pay, and (3) operating under a governing board that includes patients. FQHCs include Community Health Centers, Migrant Health Centers, Health Care for the Homeless, and Health Centers for Residents of Public Housing. The defining legislation for FQHCs (under the Consolidated Health Center Program) is section 1905(l)(2)(B) of the Social Security Act (codified at 42 U.S.C. § 1396d(I)(2)(B)).

Federally Qualified Health Center Look-Alike (FQHC Look-Alike): One of the categories of non-hospital covered entities that participate in the 340B program. FQHC LAs are community-based health care providers that meet requirements as an FQHC but do not receive FQHC funding. Like FQHCs, they provide primary care services in underserved areas, provide care on a sliding-fee scale based on ability to pay and operate under a governing board that includes patients. The defining legislation for FQHC LAs (under the Consolidated Health Center Program) is section 1905(l)(2)(B) of the Social Security Act (codified at 42 U.S.C. § 1396d(I)(2)(B)).

Formulary: A list of preferred drug products that typically limits the number of drugs available within a therapeutic class for purposes of drug purchasing, dispensing, and/or reimbursement. A government body, third-party insurer, health plan, or provider may establish and use a formulary. Some institutions or health plans develop closed (i.e., restricted) formularies where only those drug products listed can be dispensed in that institution or reimbursed by the health plan. Other formularies may have no restrictions (open formularies) or may have certain restrictions such as higher patient cost-sharing requirements or prior authorization procedures for off-formulary drugs. Formularies are used extensively by MCOs, PBMs, hospitals, and Part D prescription drug plans. Almost all Medicaid programs have preferred drug lists that operate like formularies except that a state may not prohibit use of drugs excluded from its preferred drug list. Rather, the state may set prior authorization procedures that must be exhausted before non-preferred drug list medications can be reimbursed.

Free-Standing Cancer Hospitals: Independent, nonprofit hospitals that are not parts of larger institutions and that are designated by federal statute as exempt from Medicare’s inpatient prospective payment system. A hospital not currently designated by the Medicare program as a cancer hospital can become so only through legislative action. (42 C.F.R. §412.23(f)). To qualify for 340B, a free‐standing cancer hospital must (1) be owned or operated by state or local government, a public or non-profit corporation which is formally granted governmental powers by state or local government, or a private nonprofit institution with a contract with state or local government to serve non‐Medicare and non‐Medicaid low‐income patients, contract with state or local government, (2) certify that it will not purchase CODs through a GPO, and (3) have a payer mix that would result in a Medicare DSH adjustment percentage greater than 11.75 percent if it were a DSH hospital.

Government Accountability Office (GAO): An independent, nonpartisan federal agency – often called the “Congressional watchdog” – that works for Congress and investigates how the federal government spends taxpayer dollars. The GAO has released multiple reports on the 340B program.

Group Purchasing Organization (GPO): An organization through which multiple hospitals, clinics, and other institutions purchase drugs at discounted prices. Outside the 340B program, nonprofit institutions have access to discounted drugs under the Nonprofit Institutions Act, which allows certain nonprofit institutions, including hospitals, to purchase supplies for their “own use” at prices lower than those charged to for-profit and retail purchasers (without running afoul of the Robinson-Patman Act’s anti-discrimination standards). This law creates an opportunity for nonprofit hospitals to negotiate significant drug discounts. To maximize these savings, most nonprofit hospitals pool their purchasing power by joining GPOs. Under the 340B law, however, DSHs, free-standing children’s hospitals, and free-standing cancer hospitals are required to limit their use of GPOs as a condition of participation. In particular, they are prohibited from purchasing CODs from a GPO or any other group purchasing arrangement. This requirement is often referred to as the GPO prohibition. SCHs, RRCs, and CAHs are not subject to the GPO prohibition.

GPO Prohibition: A commonly used phrase to describe an eligibility requirement that DSHs, free-standing children’s hospitals, and free-standing cancer hospitals must meet to participate in the 340B program. To qualify for 340B, these hospitals may not “obtain covered outpatient drugs through a group purchasing organization or other group purchasing arrangement.” They may use GPOs for purchasing inpatient drugs, outpatient drugs that fall outside the definition of a “covered outpatient drug,” and non-drug items like medical and surgical supplies. Additionally, there is an exception to the GPO prohibition for certain offsite outpatient facilities that meet a set of criteria. The GPO prohibition does not apply to RRCs, SCHs, or CAHs. More information about the criteria for offsite facilities and other aspects of the policy are covered in HRSA’s most recently published guidance on the GPO prohibition in February 2013, available at: https://www.hrsa.gov/sites/default/files/hrsa/opa/prohibition-gpo-participation-02-07-13.pdf.

Health Resources and Services Administration (HRSA): The agency within HHS that is charged with improving access to health services for people who are poor and uninsured or live in areas where health care resources are scarce. Working in partnership with many state and community organizations, HRSA also supports programs that help to ensure the health of mothers and children, increase the number and diversity of healthcare professionals in underserved communities, and provide supportive services for people fighting HIV/AIDS through the Ryan White CARE Act. The 340B program is administered by HRSA through OPA.

HHS Office of Inspector General (OIG): The office at HHS charged with improving HHS programs by protecting them against waste, fraud, and abuse. The four offices within OIG – Office of Audit Services, Office of Evaluation and Inspections, Office of Investigations, and Office of Counsel to the Inspector General – carry out their duties by conducting audits, evaluations, and investigations and by reporting their findings to HHS agencies, Congress, and the public. The OIG has published multiple reports on the 340B program and assisted in negotiating and implementing settlements with manufacturers that have involved payment of refunds to 340B covered entities. Under the CMP regulation, the OIG has the authority to assess a CMP of $5,000 for each instance in which a manufacturer “knowingly and intentionally” charges higher than the 340B ceiling price.

HRSA 340B Program Audits: Audits conducted to review covered entities’ and manufacturers’ compliance with 340B program requirements. Covered entity audits review compliance with the GPO prohibition (as applicable), 340B patient definition, the duplicate discount prohibition, and accuracy of OPAIS information for the covered entity. The number of covered entity audits conducted by HRSA has increased over the years, with 51 audits in fiscal year 2012, 94 audits in fiscal year 2013, 99 audits in fiscal year 2014, and approximately 200 audits for each fiscal year thereafter (averaging 79% hospitals). Covered entity audits previously were performed by HRSA’s Office of Regional Operations but, starting in October 2017, are now performed by a HRSA contractor called Bizzell US. HRSA is also authorized to audit drug manufacturers. As of January 2024, HRSA has published the results of 41 manufacturer audits. Background information on HRSA’s audit program and a summary of 340B audit results can be found on HRSA’s website: https://www.hrsa.gov/opa/program-integrity.

In-House Pharmacy: A commonly used phrase to describe a pharmacy that is owned by, and a legal part of, the 340B entity. Pharmacies are not permitted to be registered as covered entity sites, but they may need to be listed as shipping addresses for different covered entity sites, depending on the locations served by the pharmacy. (See Shipping Address)

Innovator Multiple-Source Drugs: A multiple source drug that was originally marketed under an original new drug application approved by the FDA, including an authorized generic drug. The term also includes a drug product marketed by any cross-licensed producers, labelers, or distributors operating under the new drug application and a COD approved under a biologics license application, product license application, establishment license application, or antibiotic drug application. Compared to a drug's AMP, covered entities receive a minimum discount under the 340B program of 23.1 percent of AMP for innovator multiple-source drugs (except clotting factor and drugs approved exclusively for pediatric use for which the basic rebate is 17.1 percent of AMP). Innovator multiple-source drugs may be subject to an additional discount if a manufacturer’s best price for a drug is lower than AMP minus 23.1 percent or if the price of the drug has increased more quickly than the rate of inflation. Further details regarding innovator multiple-source drugs and the rebates applicable to them can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf.

Institutional Patient Assistance Program (IPAP): A type of patient assistance program in which a manufacturer donates free drugs to a hospital, clinic, or other health care institution rather than to a patient. Typically, the drugs are donated to replace stock used by the institution for low-income individuals who meet the eligibility criteria set forth in an agreement between the manufacturer and institution. IPAP agreements also usually establish inventory control procedures and give manufacturer sponsors audit rights.

JG modifier: Since 2018, Medicare has required 340B claim identification for certain hospitals submitting claims for 340B drugs to Medicare for reimbursement (See Outpatient Perspective Payment System). DSH hospitals without a rural SCH designation from Medicare, RRCs without a rural SCH designation from Medicare, and non-rural SCHs are required to use the JG modifier for separately payable drugs acquired under 340B (status indicator “K”), including for separately payable 340B-acquired drugs in site neutral clinics (Section 603 clinics) to trigger reduced Medicare reimbursement compared to other claims. Medicare also requires use of the TB modifier by these and other 340B hospital types in certain circumstances. (See TB modifier) CAHs and Maryland waiver hospitals do not bill under OPPS and do not have any modifier requirements under OPPS.

Managed Care Organizations (MCOs): Companies that contract with payers to provide comprehensive health care services to enrollees in exchange for a monthly payment, typically a capitation payment made on a per member, per month basis. Many states have chosen to outsource delivery of health care services for their Medicaid populations to MCOs because it shifts the risk of over-utilization of services and cost overruns from the states to the MCOs. Many 340B providers treat 340B-eligible patients covered by Medicaid MCOs.

Manufacturer: For purposes of the 340B program, a “manufacturer” is defined to include any entity engaged in (1) the production, preparation, propagation, compounding, conversion, or processing of prescription drug products, either directly or indirectly by extraction from substances of natural origin, or independently by means of chemical synthesis, or by a combination of extraction and chemical synthesis, or (2) the packaging, repackaging, labeling, relabeling, or distribution of prescription drug products. Such term does not include a wholesale distributor of drugs or a retail pharmacy licensed under state law. The definition of manufacturer can be found in section 1927(k)(5) of the Social Security Act (codified at 42 U.S.C. § 1396r‐8(k)(5)). “Manufacturer” also includes an entity, described in (1) or (2) above, that sells outpatient drugs to covered entities, regardless of whether the manufacturer participates in the MDRP. Furthermore, the PPA provides that the term also includes any contractor that fulfills the responsibilities pursuant to the PPA. See www.hrsa.gov/opa/manufacturers/pharmaceuticalpricingagreement.pdf

Maximum Allowable Cost (MAC): The maximum payment that a state or private payer will make to a pharmacy for certain multiple-source drugs. State Medicaid programs and private payers with MAC programs typically publish their own lists of drugs containing the maximum price at which the program will reimburse for those drugs. Most state Medicaid agencies currently administer MAC programs for one or more CODs. MAC prices for multiple-source drugs in the aggregate may not exceed the federal upper limits in aggregate.

Medicaid Best Price: For a single-source drug or innovator multiple-source drug of a manufacturer, the lowest price available from the manufacturer during the rebate period to any wholesaler, retailer, provider, health maintenance organization (HMO), nonprofit entity, or government entity in the U.S. in any pricing structure, in the same quarter for which the AMP is computed. Best price is a variable used in the statutory formula for calculating manufacturer rebates owed to state Medicaid agencies and to determine discounts for 340B covered entities. Best price takes into account applicable discounts, rebates, or other transactions that adjust prices. Best price excludes certain prices, including but not limited to, prices charged to the Department of Veterans Affairs, Department of Defense, Indian Health Service, federal supply schedule (FSS), state pharmacy assistance programs, Medicaid, 340B covered entities, and Medicare Part D. CMS clarified in the COD rule released February 1, 2016 that manufacturers must exclude from their best price calculations any price charged to a covered entity, not just drugs sold at a 340B price. Best price data is not publicly available.

Medicaid Drug Rebate Program (MDRP): A program established under Section 1927 of the Social Security Act and administered by CMS and state Medicaid agencies requiring participating drug manufacturers to enter into, and have in effect, a national rebate agreement with the Secretary of HHS in exchange for state Medicaid and Medicare Part B coverage of most of the manufacturer’s drugs. When a manufacturer markets a new covered outpatient drug (COD), it must submit certain product and pricing data to CMS and the states for that drug. Manufacturers are required to report this data for all CODs under their labeler code. Manufacturers are then responsible for paying a rebate on those drugs for which payment was made under the state plan. These rebates are paid by drug manufacturers on a quarterly basis to states and are shared between the states and the federal government to offset the overall cost of prescription drugs under the Medicaid program. The effective price paid for CODs by Medicaid taking into account the MDRP rebates can be referred to as the “net price.”

Medicaid Exclusion File (MEF): A database created and maintained by OPA to ensure that manufacturers do not pay a rebate and a 340B discount on the same drug given to a Medicaid FFS patient (i.e., a “duplicate discount”). It is the official data source to facilitate the prevention of Medicaid FFS duplicate discounts. The MEF lists the billing numbers for each state a covered entity site (i.e., 340B ID) bills for 340B drugs given to Medicaid FFS beneficiaries (“carve-in” entities). State Medicaid agencies may use that information listed on the MEF to identify which claims to exclude from rebate requests to manufacturers.

The MEF was created to address Medicaid FFS claims only, as Medicaid managed care drugs were not subject to rebates until enactment of the ACA. Under the ACA, states were given the authority to claim rebates on managed care drugs billed to Medicaid, though 340B drugs are exempt from those rebates. In December 2014, HRSA issued a policy notice clarifying that the purpose of the MEF is to help covered entities, states, and manufacturers avoid duplicate discounts specific to Medicaid FFS, not Medicaid managed care (See Clarification on Use of the Medicaid Exclusion File, Release No. 2014-1, Dec 12, 2014 at
https://www.hrsa.gov/sites/default/files/opa/programrequirements/policyreleases/clarification-medicaid-exclusion.pdf.) In January 2020, CMS issued an Informational Bulletin describing state options for avoiding duplicate discounts. The Bulletin acknowledged that the MEF was intended to be used for Medicaid FFS only. The Informational Bulletin can be located at https://www.medicaid.gov/federal-policy-guidance/downloads/cib010820.pdf. The MEF can be found in OPAIS and is available at: https://340bopais.hrsa.gov/medicaidexclusionfiles.

Medicaid Fee-for-Service (FFS): A delivery system for Medicaid recipients whose health care providers are paid for each service they deliver (e.g., office visit, test, or procedure).

Medicaid Managed Care: Medicaid managed care provides for the delivery of Medicaid health benefits and additional services through the contracted arrangements between state Medicaid agencies and MCOs that accept a set per member per month (i.e., capitation) payment for these services.

Medicaid Rebate Net Price: The effective price paid for CODs by state Medicaid programs taking into account the MDRP rebates received by states. The basic rebate for most brand-name drugs is the greater of 23.1 percent of the AMP or the difference between the AMP and the Medicaid best price. The basic rebate for brand-name pediatric drugs and blood clotting factor is 17.1 percent or the difference between the AMP and the best price. Rebates for generic and over-the-counter drugs are 13 percent of the AMP, with no consideration of best price. Manufacturers must pay an additional rebate on brand-name and generic drugs for which the AMP increases more quickly than the rate of inflation based on the consumer price index for urban consumers.

Medicare Cost Report Test: The test used by OPA to determine whether 340B  hospital offsite outpatient facilities are required to be registered on OPAIS. Under the Medicare cost report test,  OPA requires an offsite outpatient facility to be registered as a child site in OPAIS once the facility appears on a reimbursable outpatient or ancillary line of the parent hospital’s most recently filed Medicare cost report. 

Medicare DSH Adjustment Percentage: A term used in the Medicare prospective payment system for reimbursing hospitals. In particular, the Medicare DSH adjustment percentage is used in the calculation of a hospital’s Medicare DSH adjustment, which is an add‐on to Medicare IPPS payments, available only to hospitals that serve a disproportionate number of indigent patients. In the context of eligibility for the 340B program, the Medicare DSH adjustment percentage serves as a proxy of how many indigent or low-income patients are served by the hospital. DSH hospitals must have a Medicare DSH adjustment percentage that exceeds 11.75 percent to qualify for 340B, while RRCs and SCHs must have DSH adjustment percentages of 8 percent or greater to participate in 340B. Although free‐standing children’s and cancer hospitals do not receive DSH payments because they are exempt from the IPPS program, they must have a patient mix that would result in a DSH adjustment percentage greater than 11.75 percent if they were DSH hospitals participating in the program. CAHs are also exempt from IPPS and do not receive DSH payments. However, in contrast to children’s and cancer hospitals, CAHs are not subject to minimum DSH adjustment percentages to qualify for 340B.

Medicare Part D: The portion of the Medicare statute that Congress added under the MMA of 2003 establishing an outpatient prescription drug benefit for Medicare beneficiaries. Under Part D, Medicare beneficiaries can choose from multiple drug benefit plans sponsored by either Medicare Advantage plans or by approved prescription drug plans. Part D sponsors include insurance companies, HMOs, and Program of All-inclusive Care for the Elderly (PACE) organizations. Although plans must contract with any pharmacy willing to agree to reasonable and relevant standard terms and conditions, they are permitted to set up preferred pharmacies with lower patient co-payments within their pharmacy networks.

Mega-Guidance (also known as the “Omnibus Guidance”): A commonly used phrase to describe HRSA’s 2015 proposed guidance that, if implemented, would have made far-reaching changes to the 340B program. Among the more significant changes was a proposed interpretation of “patient” that is far more restrictive than the current standard implemented through the 1996 patient definition guidelines. 80 Fed. Reg. 52,300 (Aug. 28, 2015). The Mega-Guidance was never finalized and has since been withdrawn. https://www.reginfo.gov/public/do/eoDetails?rrid=126712.

Mixed-Use Setting: A hospital area that serves both outpatients and inpatients. Examples of mixed-use settings include emergency departments, surgery centers, and procedural areas.

National Average Drug Acquisition Cost (NADAC): A commonly used term to describe a publicly available database maintained by CMS that contains the national average per unit acquisition costs paid by retail pharmacies for covered outpatient drugs other than drugs purchased with 340B discounts. NADAC is based on monthly survey data voluntarily submitted to CMS by retail pharmacies, including chain and independent pharmacies, but not specialty pharmacies. NADACs are reported at the 11-digit NDC level and are national averages that are not weighted for regional differences. CMS permits states to use NADAC as a proxy reimbursement rate for AAC reimbursement for covered outpatient drugs other than 340B Medicaid FFS retail drugs. For details on the method for calculating NADAC, go to: https://www.medicaid.gov/medicaid-chip-program-information/by-topics/prescription-drugs/ful-nadac-downloads/nadacmethodology.pdf.

National Council for Prescription Drug Programs (NCPDP): A not-for-profit, accredited, standards development organization for the pharmacy services industry. The current version of NCPDP’s standards for electronic pharmacy claim transactions is version D.0. D.0 standards for retail pharmacy claims submission allow a pharmacy to indicate that a claim is for a 340B drug and that the submitted ingredient cost of the drug is the drug’s 340B price. See “20 Modifier” and “08 Modifier” for more information.

National Drug Code (NDC): The NDC is the unique identifier assigned by the FDA to every brand-name and generic drug sold in the U.S. The NDC specifies drug identity, package size, and manufacturer. NDCs can be reported in 9‐digit or 10-digit format, which represents a weighted average of all package sizes for a particular drug, or 11‐digit format, which is package‐size‐specific. (When the FDA first issued NDC codes in 1969, there were only 9 digits, but these were increased in the 1970s to 10 digits to avoid running out of manufacturer labeler codes, which were originally 3 digits but were increased to 4.) NDCs are used by Medicaid programs to identify specific drugs that are eligible for rebates and supplemental rebates. According to HRSA, 340B covered entities should replenish inventory at the 11-digit NDC level as standard practice but covered entities may replenish at the 9-digit NDC level in limited exceptional circumstances. (See “Virtual Inventory Management.)

National Provider Identifier (NPI): The Health Insurance Portability and Accountability Act of 1996 (HIPAA) mandated the adoption of a standard unique identifier for health care providers. To accomplish this, the National Plan and Provider Enumeration System assigns each health care provider a unique, 10‐digit NPI. Health care providers covered by HIPAA, as well as all health plans and health care clearinghouses, must use the NPIs in the administrative and financial transactions adopted under HIPAA. OPA requires covered entities that carve-in their Medicaid FFS drugs to submit their NPIs and Medicaid billing numbers for inclusion in OPA’s Medicaid Exclusion File to help prevent duplicate discounts.

Native Hawaiian Health Centers: One of the categories of non-hospital covered entities that participate in the 340B program. The centers receive Native Hawaiian Health Care Systems Program funding (through the HRSA Health Center Program appropriation) to provide medical and enabling services to Native Hawaiians. The centers improve the health status of Native Hawaiians by providing access to health education, health promotion, and disease prevention services. Services provided include nutrition programs, screening and control of hypertension and diabetes, immunizations, and basic primary care services. The program is authorized by the Native Hawaiian Health Care Act of 1988, codified at 42 U.S.C. § 11701.

Nominal Prices: The price of any drug sold by a manufacturer for less than 10 percent of the drug’s AMP in the same quarter for which the AMP is computed. Traditionally, nominally priced drugs have been excluded from best price and AMP for purposes of calculating Medicaid rebates and 340B discounts. Nominal prices are also excluded from ASP. However, pursuant to the Deficit Reduction Act (DRA) of 2005, only sales of nominally priced drugs to 340B covered entities and certain other safety-net providers specified in the DRA are excluded from best price, AMP, and ASP. The DRA authorized the Secretary of HHS to add other kinds of safety-net institutions to the list of entities eligible for nominal price protection but, to date, the Secretary has declined to do so. Two additional categories of eligible institutions were added by Congress as part of the 2009 appropriations law, including (1) nonprofit or state-owned or -operated entities that would qualify as 340B covered entities were they to receive federal funds, and (2) public or nonprofit entities or university health care clinics that provide a family planning service. CMS codified the addition of these two new entities to the list of entities that are eligible for manufacturers to sell drugs at nominal prices and have those sales excluded from best price in the COD rule released on February 1, 2016.

Noninnovator Multiple-Source Drugs: CMS defines noninnovator multiple-source drug as (1) a multiple-source drug that is not an innovator multiple-source drug or a single-source drug; (2) a multiple-source drug that is marketed under a generic drug application; (3) a COD that entered the market before 1962 that was not originally marketed under a new drug application; or (4) any drug that has not gone through the FDA approval process, but otherwise meets the definition of COD. If any drug products listed above subsequently receive FDA approval as a brand name or generic drug, the product’s drug category changes to correlate with the new product application type. Compared to a drug's AMP, covered entities receive a discount under the 340B program of 13 percent of AMP for noninnovator multiple-source drugs. Manufacturers must offer greater discounts on noninnovator multiple-source drugs if the price of such a drug increases more quickly than the rate of inflation.

Office of Pharmacy Affairs (OPA): The office within HRSA that administers the 340B program. OPA is located within HRSA’s Office of Special Health Initiatives and is located at HRSA headquarters in Rockville, MD.

Offsite Location: For purposes of the 340B program, a location with a separate physical address than the hospital parent site and that is not within the four walls of the main hospital. OPA requires that a covered entity register as child sites all offsite clinics/departments/services where 340B drugs are purchased or used, regardless of whether those clinics/departments/services are in the same offsite building or space, as soon as the offsite location appears on the hospital’s most recently filed Medicare cost report. Note that an “offsite” clinic for 340B purposes may be on the hospital’s campus for Medicare provider-based purposes.

OPAIS: See “340B OPAIS”

Orphan Drugs: A designation granted by the FDA for drugs that are being or will be investigated to treat diseases and conditions that (1) affect fewer than 200,000 patients in the U.S., or (2) if the disease or condition affects more than 200,000 patients in the U.S., will produce sales that fail to cover the costs of the drug’s development and production. Orphan drug designation by the FDA is for a particular “indication” – a condition or illness which the FDA determines the drug could be used to treat. Manufacturers of orphan drugs are granted seven years of market exclusivity upon receiving approval from the FDA to market an orphan drug for the rare disease or condition for which it received its orphan designation. Pursuant to a provision included in the ACA, manufacturers are not required to give 340B discounts on a drug given an orphan drug designation by the FDA under section 526 of the Federal Food, Drug, and Cosmetic Act when purchased by free-standing cancer hospitals, SCHs, RRCs, and CAHs. This “orphan drug exclusion” does not apply to any other category of 340B covered entities. An orphan drug designation list can be found on the OPA website: http://www.hrsa.gov/opa/programrequirements/orphandrugexclusion/index.html#about.

OPA has clarified on its website that manufacturers may voluntarily offer discounts on orphan drugs to covered entities subject to the orphan drug exclusion.

Outpatient Prospective Payment System (OPPS):  The Medicare reimbursement methodology for reimbursing most hospitals for items and services furnished to hospital outpatients. Medicare historically reimbursed all hospitals under the OPPS for separately payable drugs at ASP plus 6 percent. On November 1, 2017, CMS published a final OPPS rule for calendar year 2018 changing reimbursement from ASP plus 6 percent to ASP minus 22.5 percent for most separately payable drugs purchased by hospitals through the 340B or PVP programs and requiring 340B claim identification (See JG modifier, TB modifier). The reimbursement cut did not apply to rural sole community hospitals, critical access hospitals, Maryland waiver hospitals, children’s hospitals, and cancer hospitals participating in the 340B program and initially did not apply to certain recently opened, off-campus clinics, often referred to as “site-neutral” clinics. CMS continued the cuts for calendar years 2019, 2020, 2021, and 2022 and expanded the scope of these cuts to include 340B drugs administered in site-neutral clinics. Rural sole community hospitals, critical access hospitals, Maryland waiver hospitals, children’s hospitals, and cancer hospitals were still exempted from the pay cuts.

In June 2022, the U.S. Supreme Court ruled that the payment reductions made to 340B hospitals in 2018 and 2019 were unlawful. All nine justices ruled that HHS failed to conduct a survey of hospitals’ drug acquisition costs before imposing the cuts and therefore violated protections in the law against lowering payment rates only for certain types of hospitals. The court overturned a federal appeals court decision that was in favor of HHS on this issue. The decision sent the case back to a lower court to determine next steps, including the question of remedies to affected hospitals. In September 2022, a federal judge ordered HHS to immediately end the payment reductions.

CMS’s final 2023 OPPS rule restored 2023 Medicare Part B payments for separately payable drugs to average sales price (ASP) plus 6% for all hospitals paid under the OPPS. The final rule contained additional 340B-related information, including continuing the claims modifier mandate. In November 2023, CMS finalized its plans to remedy the underpayments to 340B hospitals from 2018 through 2022 by providing $9 billion in lump-sum repayments. The rule also finalizes about $7.8 billion in pay cuts for non-drug items and services for both 340B and non-340B hospitals through a 0.5% rate reduction under the Medicare outpatient prospective payment system (OPPS) that will start in 2026 and last an estimated 16 years. That same day, CMS finalized its 2024 OPPS rule that sets 340B drug payments for 2024 at the full rate of ASP plus 6%. The final OPPS rule also adopted the proposal to require all 340B hospitals paid under the OPPS to report the “TB” modifier for 340B-acquired drugs and biologicals effective Jan. 1, 2025, even if the hospital previously reported the “JG” modifier.

Parent Entity: The main facility of a hospital that becomes eligible to use 340B drugs by virtue of the entity’s enrollment in the 340B program. In contrast, outpatient clinics/departments/services that have a different street address than the hospital’s main facility and are located outside the four walls of the main hospital must be separately registered as “child sites” with OPA once they appear on a reimbursable line of the most recently filed Medicare cost report.

Patient Assistance Program (PAP): Programs offered by drug manufacturers to individuals in which free drugs and/or other forms of assistance are donated to individuals who lack drug coverage, fall below designated income levels, or meet other eligibility requirements. Receipt of free drugs from a PAP typically occurs after a patient submits an application, the PAP approves the application, and the free drugs are delivered to a licensed pharmacy or physician for dispensing or administration to the patient.

Penny Pricing: A HRSA regulation regarding the 340B ceiling price calculation in circumstances when a manufacturer increases the AMP of a brand-name drug more quickly than the rate of inflation to such a degree that it causes the 340B ceiling price calculation to result in a price of $0.00. In such situations, HRSA directs manufacturers to charge 340B covered entities $0.01 per unit of measure for the drug. The penny pricing policy is a result of a MDRP rule under which a manufacturer must pay an additional rebate amount when the manufacturer increases a brand-name drug’s AMP more quickly than the rate of inflation, resulting in an increased Medicaid URA. Because the 340B ceiling price is a drug’s AMP minus the URA and a drug’s URA is capped at 100 percent of a drug’s AMP, the 340B ceiling price calculation could result in a price of $0.00 depending on the extent to which the URA has increased. HRSA has asked manufacturers to inform the agency if a penny price would result in supply challenges. If so, manufacturers are permitted to limit 340B sales based on a limited distribution allocation plan submitted to HRSA. Effective January 1, 2017, manufacturers must offer greater discounts on generic drugs if the price of a generic drug increases more quickly than the rate of inflation, which could result in penny prices for some generic drugs. The regulation can be found at 82 Fed. Reg. 1,210 (Jan. 5, 2017) https://www.gpo.gov/fdsys/pkg/FR-2017-01-05/pdf/2016-31935.pdf.

Pharmaceutical Pricing Agreement (PPA): Under the 340B and Medicaid statutes, a manufacturer is required to enter into a PPA with the HHS Secretary as a condition of Medicaid and Medicare Part B paying for the manufacturer’s CODs. An executed PPA obligates the manufacturer to comply with the terms of the 340B program which include, for example, providing a 340B discount on CODs. In September 2018, HRSA republished an addendum to the PPA to incorporate two 340B program integrity provisions that were mandated by the ACA: (1) a manufacturer must provide the 340B ceiling prices of its CODs to the Secretary of HHS on a quarterly basis and (2) a manufacturer must offer a covered entity a COD for purchase at or below the 340B ceiling price if the drug is made available to any other purchaser at any price. A copy of a PPA can be found at https://www.hrsa.gov/opa/manufacturers/pharmaceuticalpricingagreement.pdf, and a copy of the addendum can be found at https://www.hrsa.gov/opa/manufacturers/ppa_addendum.pdf.

Pharmacy Benefit Manager (PBM): An organization that provides administrative and other services in processing and analyzing prescription drug claims for insurance plans and other payers that offer pharmacy benefits. PBM services can include: contracting with a network of pharmacies; establishing payment levels for provider pharmacies; negotiating rebate arrangements with drug manufacturers; developing and managing formularies, preferred drug lists, and prior authorization programs; maintaining patient compliance programs; performing drug utilization review; and operating medication therapy management programs. Many PBMs also operate mail-order pharmacies or have arrangements to make prescription drugs available through mail-order pharmacies. PBMs play a key role in managing drug plans in the Medicare Part D drug program.

Physically Separate Inventory: A method used by covered entities to comply with the 340B diversion prohibition by keeping their 340B drugs physically separate from their non-340B drugs. In a physically separate inventory system, CEs are able to determine patients’ 340B eligibility at the time drugs are dispensed or administered. Safeguards must be established to prevent comingling of the two inventories and to allow the borrowing of drugs between inventories only in emergency situations. This model requires adequate space to maintain two separate inventories. Physically separate inventories are an alternative to virtual inventory systems which are a more common method used by covered entities for managing their 340B drugs. See definition of “Virtual Inventory Management.”

Physician-Administered Drugs: A commonly used phrase to describe non-retail drugs or drug ingredients that must be injected, infused, or otherwise administered or dispensed by a physician or a non-physician professional under the supervision of a physician. Physician-administered drugs are subject to discounts under the 340B program.

Preferred Drug Lists: See “Formulary.”

Program Income: Program income is the income earned by federal grantees and sub-grantees due to a supported activity or as a direct result of the programs operated under their grant and sub-grants. If a grantee or sub-grantee participates in the 340B program and receives revenue as a result of billing and collecting payment on 340B drugs, HRSA considers such revenue to be program income on the grounds that the revenue is earned as a direct result of the grant. HRSA grantees therefore must follow federal grant rules and regulations requiring that program income be used to reduce the amount of federal funding the grantee draws down or, if the specific program or award so specifies, to supplement the grant funds in order to further program objectives.

Professional Dispensing Fee (PDF): See “Dispensing Fee.”

Provider-Based Rules: Federal regulations that set forth criteria that must be met for a site to be deemed provider-based for Medicare payment purposes. “Main providers” – such as hospitals, nursing homes and other institutions – may own and operate other departments, facilities, or remote locations and may want to include the cost or revenue of these sites as part of the main provider for Medicare reimbursement purposes. For a site to be considered provider-based, the site must be an integral part of the provider, by meeting the following eight criteria, which are described in detail at 42 C.F.R. § 413.65: (1) joint licensure; (2) integration of clinical services, including main provider oversight and administration of (and responsibility for) the clinical services rendered at the provider-based site; (3) integration of medical records; (4) integration of financial operations; (5) holding the provider-based site out to the public as part of the main provider; (6) compliance by the provider-based site with rules and regulations applicable to the main provider; (7) billing of services rendered at the provider-based site to Medicare patients as hospital services; and (8) integration of administrative and managerial functions. Additional requirements apply for provider-based sites located off of the main provider’s campus. A hospital offsite clinic/department/service is eligible to participate in 340B if it meets the provider-based rules, as evidenced by the fact that it is reimbursable under Medicare cost reporting rules.

Recertification: The annual process by which 340B providers review and update their information in OPAIS. The process also includes several certification statements or “attestations” related to 340B program compliance.

Replenishment Model: See “Virtual Inventory Management.”

Rural Referral Center (RRC): A rural, high‐volume hospital that meets one of three sets of conditions: (1) it has 275 or more beds available for use; (2) (i) at least 50 percent of its Medicare patients are referred from other hospitals or from physicians not on the hospital’s staff; (ii) at least 60 percent of its Medicare patients live more than 25 miles away; and (iii) at least 60 percent of all services it furnishes to Medicare beneficiaries go to those living more than 25 miles away; or (3) (i) either more than 50 percent of its active medical staff are specialists or at least 60 percent of its discharges are inpatients who live more than 25 miles away or 40 percent or more of inpatients are referred from other hospitals or physicians not on the hospital’s staff and (ii) it meets certain case mix standards set by CMS and discharge standards set by statute and CMS. The RRC eligibility criteria can be found at 42 C.F.R. § 412.96. To be 340B eligible, an RRC must have a Medicare DSH adjustment percentage of 8 percent or greater and either be owned or operated by state or local government, a public or private non-profit corporation which is formally granted governmental powers by state or local government, or a private nonprofit institution with a contract with state or local government to serve non‐Medicare and non‐Medicaid, low-income patients.

Ryan White Program Grantees: One of the categories of non-hospital covered entities that participate in the 340B program. Ryan White HIV/AIDS Program grantees receive federal funding to provide HIV/AIDS treatment and related services to people living with HIV/AIDS who are uninsured or under-insured. Part B State AIDS Drug Assistance Program grantees and Part C Early Intervention Services grantees are specifically eligible. Grantees receiving Ryan White funding through other Parts may be eligible if they are certified by the HHS Secretary. The defining legislation for the Ryan White HIV/AIDS Program is Title XXVI of the Public Health Service Act. 340B eligibility extends to both Ryan White grantees and sub-grantees.

Section 602 of the Veterans Health Care Act: Section 340B of the Public Health Service Act was established under Section 602 of the Veterans Health Care Act of 1992. As a result, the terms “Section 340B” and “Section 602” are used interchangeably. The law is codified at 42 U.S.C. § 256b.

Site Neutral Payment: Section 603 of the 2015 Bipartisan Budget Act (BBA) specifies that, effective January 1, 2017, unless a provider-based off-campus hospital outpatient department was billing in that capacity prior to BBA 2015’s date of enactment (November 2, 2015), Medicare will reimburse for most services provided at the department at a lower rate than for other provider-based outpatient departments. Under CMS rules implementing this provision, Medicare reimbursement for separately payable drugs is not affected by this reimbursement reduction authorized by BBA 2015. In a separate rulemaking, however, CMS implemented payment reductions for 340B drugs effective January 1, 2018 (See definition of OPPS). The statute includes some exceptions, including for rural sole community hospitals, off-campus emergency departments, FQHCs and FQHC look-alikes. HRSA has not given any indication that outpatient departments that are subject to the reduced payment provisions under BBA 2015 are ineligible for the 340B program.

Sexually Transmitted Disease Clinic (STD Clinic): One of the categories of non-hospital covered entities that participate in the 340B program. STD clinics diagnose and treat sexually transmitted diseases and receive funding or in-kind supplies or services from their state and local health departments through the STD Control Program administered by the Centers for Disease Control and Prevention (CDC). STD clinics must apply for the 340B program through their state program director. The program is authorized by Section 318 of the Public Health Service Act (codified at 42 U.S.C. § 247c).

Ship-To Address or Shipping Address: A “ship-to” or “shipping” address is an address authorized to receive 340B drugs on behalf of a covered entity and registered as such on OPAIS. Pharmacies are not permitted to be registered as covered entity sites, but they may be listed as shipping addresses for different covered entity sites, depending on the locations served by the pharmacy. Listing shipping addresses permits all parties to know where 340B drugs may be delivered by the manufacturer and wholesaler. When a pharmacy is supporting multiple child sites of a parent entity, the pharmacy should be listed as a “ship to” address under the parent’s 340B ID. (For more details, go to: http://www.hrsa.gov/opa/faqs/index.html).

Single-Source Drugs: Single-source drug is defined by statute as a COD that is produced or distributed under an original new drug application approved by the FDA and has an approved new drug application number issued by the FDA, including a drug product marketed by any cross-licensed producers or distributors operating under the new drug application. CMS includes in the definition of single-source drug a COD approved under a biologics license application, product license application, establishment license application, or antibiotic drug application. Further details regarding single-source drugs and the rebates applicable to them can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf. Compared to a drug's AMP, covered entities receive a minimum discount under the 340B program of 23.1 percent of AMP for single-source drugs (except clotting factor and drugs approved exclusively for pediatric use for which the basic rebate is 17.1 percent of AMP). Single-source drugs may be entitled to an additional discount if a manufacturer’s best price for a drug is lower than AMP minus 23.1 percent for that drug or if the price of the drug has increased faster than the rate of inflation.

Sole Community Hospital (SCH): A hospital that is: (1) located 35 miles from other like hospitals; (2) a rural hospital 45 minutes or more in travel time distance from a like hospital; (3) a rural hospital that is between 15 and 25 miles from other like hospitals but, because of local topography or prolonged severe weather conditions, inaccessible from other hospitals at least 30 days in each of two out of three years; or (4) a rural hospital that is between 25 and 35 miles from other hospitals and (i) is inaccessible from other hospitals for at least 30 days in each of two out of three years due to local topography or prolonged severe weather conditions, (ii) for which no more than 25 percent of residents who become hospital inpatients or no more than 25 percent of Medicare beneficiaries who become hospital inpatients in the hospital’s service area are admitted to other like hospitals within a 35 mile radius of the hospital or, if larger, within its service area, or (iii) has fewer than 50 beds and would meet the 25 percent criterion in item (ii) but for the fact that some residents or beneficiaries had to seek specialized care outside of the service area due to the hospital’s lack of specialty services. 42 C.F.R § 412.92. To be admitted to the 340B program, an SCH must receive a Medicare DSH adjustment percentage of 8 percent or higher. In addition, it must be owned or operated by state or local government, a public or non-profit corporation which is formally granted governmental powers by state or local government, or a private nonprofit institution with a contract with state or local government to serve non‐Medicare and non‐Medicaid, low-income patients.

Specialty Drugs: Although the term is frequently used, there is no statutory or regulatory definition or even a commonly agreed upon definition. The OIG’s current work plan includes a study of Medicaid reimbursement for specialty drugs, and states that, “[t]here is no standard definition for specialty drugs. They may be expensive; be difficult to handle, monitor or administer; or treat rare, complex or chronic conditions.” (See: https://oig.hhs.gov/reports-and-publications/workplan/summary/wp-summary-0000255.asp.) Medicare Part D recognizes a specialty “tier” of drugs that is defined as a formulary cost-sharing tier dedicated to high-cost Part D drugs and biological products that exceed a cost threshold established by the CMS.” 42 C.F.R. § 423.104. In order for a drug to be placed on the specialty tier, the plan’s negotiated price for the drug must exceed a monthly threshold.

Specialty Pharmacy: Generally, a pharmacy that distributes specialty drugs. See definition of “Specialty Drugs.” Like “specialty drugs,” there is no universally recognized definition of “specialty pharmacy.” In its June 2018 reported entitled “Federal Oversight of Compliance at 340B Contract Pharmacies Needs Improvement,” the GAO cited DataQ, a database used by health care payers and claims processors to identify pharmacies, to describe specialty pharmacies as “pharmacies that dispense low-volume and high-cost drugs to patients undergoing intensive therapies for illnesses that are generally chronic, complex and potentially life threatening.” (p. 20, footnote 34). Several accrediting organizations, such as URAC, the Accreditation Commission for Health Care, the Joint Commission and the Community Health Accreditation Program, issue accreditations for specialty pharmacies.

Split-Billing Software: A commonly used phrase to describe software used by a 340B hospital to help manage two or more drug inventories (i.e., 340B, GPO, and non-GPO/WAC) that are physically co-mingled but kept virtually separate using software that tracks patient and drug data elements and determines the correct purchase account (See Virtual [aka Replenishment] Model for more details on this inventory management model).

Supplemental Rebates: Rebates paid by manufacturers to state Medicaid agencies in addition to the rebates paid under the Medicaid drug rebate law. These supplemental rebates are typically paid by manufacturers to ensure that the companies’ drugs are included on the state Medicaid agency’s preferred drug list.

TB modifier: Since 2018 Medicare has required 340B claim identification for certain hospitals submitting claims for 340B drugs to Medicare for reimbursement (See Outpatient Perspective Payment System).

DSH hospitals without a rural SCH designation from Medicare, RRCs without a rural SCH designation from Medicare, and non-rural SCHs are required to use the TB modifier for 340B-acquired pass through drugs (status indicator “G”). This requirement includes 340B-acquired drugs in site neutral clinics (Section 603 clinics).

Children’s hospitals, IPPS-exempt cancer hospitals, and rural sole community hospitals as described under the regulations at 42 § CFR 412.92 and designated as rural for Medicare purposes are required to use the TB modifier for separately payable drugs acquired under 340B (status indicator “K”) and 340B-acquired pass-through drugs (status indicator “G”). This requirement includes 340B-acquired drugs in site neutral clinics (Section 603 clinics).

The TB modifier is an informational modifier that does not trigger reduced reimbursement under OPPS. Medicare also requires use of the JG modifier by some 340B hospital types in certain circumstances to trigger reduced reimbursement under OPPS (See JG modifier). CAH and Maryland waiver hospitals do not bill under OPPS and do not have any modifier requirements under OPPS.

Termination Date: The date in OPAIS on which a provider’s participation in the 340B program is terminated. After its termination date, a provider can no longer purchase 340B drugs. OPA updates termination dates on a quarterly basis. According to Apexus, a provider may need to stop buying 340B drugs even before its termination date appears in OPAIS. For example, a hospital that becomes for-profit must immediately stop purchasing 340B drugs upon losing its non-profit status, even if its termination date has not yet appeared in OPAIS.

Title X Family Planning Clinics: One of the categories of non-hospital covered entities that participate in the 340B program. Title X family planning clinics receive funding from the Title X Family Planning Program to provide contraceptive services, counseling, and reproductive health-related preventive services, with priority given to low-income people. Title X family planning projects provide family planning services through community-based clinics that include state and local health departments, tribal organizations, hospitals, university health centers, independent clinics, community health centers, faith-based organizations, and other public and private nonprofit agencies. Title X family planning clinics must apply for the 340B program through their grantee organization. Title V (state-funded) family planning clinics are not eligible for the 340B program. Title X Family Planning funding is authorized by section 1001 of the Public Health Service Act (codified at 42 U.S.C. §§ 300 et seq.).

Track and Trace: A commonly used phrase to describe the requirements established under Title II of the Drug Quality and Security Act of 2013 (21 U.S.C. § 300ff et seq.), which enable the FDA to trace individual lots of prescription drug products through the pharmaceutical supply distribution chain, namely, from the manufacturer, through the distribution process, to the dispenser. The system is designed to allow the FDA to quickly investigate and quarantine suspect or illegitimate drug products in order to protect consumers from exposure to drugs that may be counterfeit, stolen, contaminated, or otherwise harmful.

Tribal/Urban Indian Health Clinics: One of the categories of non-hospital covered entities that participate in the 340B program. This category includes Tribal Contract or Compact Health Centers and Urban Indian Health Centers. Tribal Contract or Compact Health Centers (also called a 638 contract or compact) are operated by Tribes or Tribal organizations. Urban Indian Health Centers are outpatient health care programs and facilities that specialize in caring for American Indians and Alaska natives. They are all operated under the Indian Self-Determination Act. Urban Indian Health Centers are designated FQHCs that provide comprehensive primary care and related services to American Indians and Alaska Natives. The facilities are owned or leased by Urban Indian organizations and receive grant and contract funding through Title V of the Indian Health Care Improvement Act.

Tuberculosis Clinic: One of the categories of non-hospital covered entities that participate in the 340B program. Tuberculosis clinics receive funding from their state tuberculosis control offices to prevent, diagnose, and treat tuberculosis. The CDC administers the program. Tuberculosis clinics must apply for the 340B program through their state program director. The program is authorized under section 317(j)(2) of the Public Health Service Act (codified at 42 U.S.C. § 247b(j)(2)).

UB-04: Formerly known as UB-92, the electronic version of the CMS-1450 form, which is the uniform institutional claim form used by institutional and other selected providers (including 340B hospitals) to transmit claim information to Medicare and most state Medicaid agencies. The form is developed by the National Uniform Billing Committee, which is comprised of key organizations whose members are affected by administrative transactions within the institutional sector of the health care community. Hospitals typically use the UB-04 form to bill physician-administered drugs.

UD Modifier: The UD modifier is a Healthcare Common Procedure Coding System (HCPCS) medical code modifier. HCPCS modifiers provide supplementary information regarding the HCPCS code used to identify the procedure, service, or item that is listed on a claim. The UD modifier is defined as “Medicaid level of care 13, as defined by each state.” Some states require that, when billing Medicaid for 340B drugs, covered entities use the UD modifier or a similar value (e.g., U8 modifier) to identify that the claim submitted relates to a 340B drug.

Unit Rebate Amount (URA): The amount of Medicaid rebate due for each unit of a drug based on statutory formulas found in section 1927 of the Social Security Act. URA is important for purposes of the 340B program because a drug’s 340B ceiling price is the drug’s AMP minus the URA. For noninnovator drugs, the standard URA is 13 percent of the AMP per unit. For single-source and innovator multiple source drugs, the basic URA is the greater of 23.1 percent of the AMP per unit or the difference between the AMP and the best price per unit. For clotting factors and pediatric drugs, the standard URA is the greater of 17.1 percent of the AMP per unit or the difference between the AMP and the best price per unit. For noninnovator, single-source, innovator multiple-source, and pediatric drugs as well as clotting factor, manufacturers must offer greater Medicaid rebates and 340B discounts if the price of the product increases more quickly than the rate of inflation. For a drug that is a new formulation (line extension) of a brand-name drug that is an oral solid dosage form, the rebate is the amount computed under section 1927, 42 U.S.C. § 1396r-8, or, if greater, the product of (1) the AMP for the line extension drug, (2) the highest additional rebate for any strength of the original brand-name drug, and (3) the total number of units of each dosage form and strength of the line extension drug. The total rebate amount may not exceed 100 percent of the AMP of the drug. Further discussion regarding the calculation of the URA can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-02-01/pdf/2016-01274.pdf.

Value-Based Purchasing: A type of arrangement between a health care payer and a supplier or provider that ties payments to an agreed-upon health outcome or other evidence-based clinical benchmark. As drug costs have climbed and medication-based therapies have increased in importance, payers are increasingly entering into value-based purchasing arrangements to help ensure that payment for pharmaceuticals and drug-related services are based on clinical performance.

Virtual (aka Replenishment) Inventory Model: A system of identifying and replenishing 340B and non-340B drugs using software that tracks patient and drug data. Under such a system, a covered entity maintains a single, neutral physical inventory in which drugs are initially purchased at non-340B prices (hospitals subject to the GPO prohibition must initially purchase drugs at non-340B, non-GPO prices [e.g., WAC] while rural hospitals may initially purchase drugs at GPO prices). After initial purchases, data elements are fed into software that virtually separates transactions and accumulates for the appropriate purchasing account (e.g., 340B, GPO, or non-GPO/WAC account). 340B purchasing takes place once a full package size is accumulated. Hospitals subject to the GPO prohibition will also accumulate on a GPO account and GPO purchasing takes place once a full package size is accumulated. Anything beyond what is listed in the 340B, and GPO (if applicable), accumulators is purchased using a non-340B account or non-340B, non-GPO account (if applicable).

Wholesale Acquisition Cost (WAC): The price paid by a wholesaler for drugs purchased from the wholesaler’s supplier, typically the manufacturer of the drug. On financial statements, the total of these amounts equals the wholesaler’s cost of goods sold. Disclosed in published compendia, listed WAC amounts may not reflect all available discounts.

Wholesaler: A wholesaler is a company that purchases drugs from a supplier, usually the manufacturer, for the purpose of distributing the drugs to pharmacies, hospitals, physicians, and other purchasers that dispense and/or administer drugs to patients. Wholesalers are regulated under federal and state law and, as a result, are subject to numerous reporting, storage, and handling standards designed to protect the integrity of drug products.

If you have any questions or comments, please contact 340B Health’s Senior Manager of Policy and Compliance, Rebecca Swartz, at 202-552-5852 or rebecca.swartz@340bhealth.org.