340B Health

Key Terms

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Key Acronyms

"5i" Drug Inhalation, Infusion, Instilled, Implanted, or Injectable Drugs
AAC Actual Acquisition Cost
ACA Affordable Care Act (abbreviation of PPACA)
ADR Administrative Dispute Resolution (or Alternative Dispute Resolution)
AMDP Alternative Methods Demonstration Project
AMP Average Manufacturer Price
ASP Average Sales Price
CAH Critical Access Hospital
CBO Congressional Budget Office
CMP Civil Monetary Penalty
CMS Centers for Medicare & Medicaid Services
COD Covered Outpatient Drug
DOD Department of Defense
DRA Deficit Reduction Act of 2005
DSH Disproportionate Share Hospital
FCP Federal Ceiling Price
FDA Food and Drug Administration
FSS Federal Supply Schedule
FQHC Federally Qualified Health Center
FQHC LA Federally Qualified Health Center Look-Alike
GAO Government Accountability Office
GPO Group Purchasing Organization
HCPCS Healthcare Common Procedure Coding System
HHS Department of Health and Human Services
HIPAA Health Insurance Portability and Accountability Act of 1996
HMO Health Maintenance Organization
HRSA Health Resources and Services Administration
HTC Hemophilia Treatment Center
IPI International Pricing Index
IPAP Institutional Patient Assistance Program
IPPS Inpatient Prospective Payment System
MAC Maximum Allowable Cost
MCO Managed Care Organization
MDRP Medicaid Drug Rebate Program
MMA Medicare Modernization Act
MTM Medication Therapy Management
NDC National Drug Code
Non-FAMP Non-Federal Average Manufacturer Price
NPI National Provider Identifier
OIG Office of Inspector General
OPA Office of Pharmacy Affairs
OPPS Outpatient Prospective Payment System
PAP Patient Assistance Program
PBM Pharmacy Benefit Manager
PDL Preferred Drug List
PHS Public Health Services
PPA Pharmaceutical Pricing Agreement
PPACA Patient Protection and Affordable Care Act
PPO Preferred Provider Organization
RRC Rural Referral Center
SCH Sole Community Hospital
SPAP State Pharmaceutical Assistance Program
STD Clinic Sexually Transmitted Disease Clinic
URA Unit Rebate Amount
VA Department of Veterans Affairs
WAC Wholesale Acquisition Cost

Key Terms

08 Modifier: The National Council for Prescription Drug Programs’ 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 National Council for Prescription Drug Programs’ 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 Drug Pricing Program (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 field. The 20 Modifier might be used in conjunction with the 08 Modifier.

340B Ceiling Price: The maximum price that manufacturers can charge covered entities participating in the Public Health Service's 340B program for covered outpatient drugs (CODs). The 340B discount is calculated using the Medicaid rebate formula and is deducted from the manufacturer's selling price rather than paid as a rebate. Compared to a drug's average manufacturer price (AMP), covered entities receive a minimum discount of 23.1 percent for brand-name drugs (except clotting factor and drugs approved exclusively for pediatric use for which the basic rebate is 17.1 percent of AMP), 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). Pursuant to the Patient Protection and Affordable Care Act (PPACA or ACA), 340B ceiling prices for CODs must be publicly available through a secure website. HRSA announced on November 30, 2018 that it anticipated publishing 340B ceiling prices on the website on April 1, 2019.

340B Health: A non-profit organization based in Washington, D.C. that represents the interests of hospitals in the 340B program. 340B Health has been advocating on behalf of the hospitals in the 340B program since the program’s inception over 25 years ago. It has over 1400-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 the Office of Pharmacy Affairs (OPA) to each 340B parent or child site.

340B OPAIS: HRSA implemented its new 340B Office of Pharmacy Affairs Information System (340B OPAIS) in September 2017, changing how covered entities provide and edit information in the 340B database. 340B OPAIS can be found at https://340bopais.hrsa.gov/.  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 the Department of Health and Human Services (HHS) to create a "prime vendor" program 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. The current contract, which was renewed in September 2014, runs through September 29, 2019. Participation in the prime vendor program is optional for covered entities, though they may be able to access more favorable prices through the prime vendor program 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 Food and Drug Administration (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. Some state Medicaid programs have a history of using AAC to set reimbursement rates for 340B fee-for-service (FFS) retail drugs to compensate for the loss of the states’ rebates for such drugs. Effective April 1, 2017, all state Medicaid programs must apply reimbursement rates based on AAC to covered outpatient drugs that are used in the retail setting and covered by Medicaid on a FFS basis. The April 1, 2017 deadline was established by CMS by regulation – commonly referred to as the COD rule – that implemented changes to the federal Medicaid drug rebate and reimbursement laws established by Congress as part of the ACA. The COD rule, which was released on February 1, 2016, directs states to move away from basing reimbursement for FFS Medicaid retail drugs on estimated acquisition cost and to use instead AAC as the basis for reimbursement, including for 340B drugs. The COD rule went into effect on April 1, 2016 and states had until June 30, 2017 to submit their State Plan Amendments for adopting the new AAC-based reimbursement changes.

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 covered outpatient drugs 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. 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 (https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=201704&RIN=0906-AA90).

HRSA currently has a voluntary non-binding dispute resolution process that has sometimes been referred to as Alternative Dispute Resolution. (See HRSA’s website at: (https://www.hrsa.gov/sites/default/files/opa/programrequirements/federalregisternotices/disputeresolutionprocess121296.pdf)).

Affordable Care Act (ACA): Abbreviated term used for Patient Protection and Affordable Care Act.

Alternative Methods Demonstration Projects (AMDP): HRSA-approved projects that gave 340B covered entities flexibility to operate programs or enter into agreements with other covered entities that would otherwise not be allowed under 340B guidelines. These demonstration projects were intended to test new methods of participating in the 340B program to improve access to 340B CODs. The last AMDP listed on the OPA website ended in September 2015. OPA does not currently accept AMDP applications.

Any Willing Pharmacy: By law, Medicare Part D plans must offer network participation contracts to any willing pharmacy that meets the standard terms and conditions of the network contract. Furthermore, Medicare regulations state that Part D plans must have standard contracts with “reasonable and relevant terms and conditions of participation whereby any willing pharmacy may access the standard contract and participate as a network pharmacy.” Some states have enacted any willing pharmacy laws that extend to commercial insurance plans.

Apexus Generic Portfolio: Hospitals subject to the prohibition against using a group purchasing organization (GPO) to obtain CODs (GPO exclusion) are generally required to pay higher, non-GPO prices – typically at wholesale acquisition cost (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 prime vendor program, 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 exclusion.

Apexus, Inc.: The organization under contract with HRSA to administer the 340B prime vendor program. 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. The prime vendor contract was first awarded to Apexus in 2007. The current contract, which was renewed in September 2014, runs through September 29, 2019.

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 reach out 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.

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 a number of 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 Medicaid Drug Rebate Program (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.

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 Modernization Act, 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.”

Big 4: The four largest purchasers of pharmaceuticals within the federal government: Department of Veterans Affairs, Department of Defense, Public Health Service, and Coast Guard. These four federal agencies have the right to purchase their pharmaceuticals through federal supply schedule (FSS) contracts like every other federal agency. However, the Big 4 often get pricing below FSS on brand-name drugs because these drugs are subject to a maximum statutory price called the federal ceiling price.

Bizzell Group: 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 Federally Qualified Health Centers (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”: The term “carve-in” is used 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 FFS Medicaid patients, covered entities that carve-in must inform OPA of that decision and submit to OPA the numbers that they use to bill FFS Medicaid for 340B drugs. OPA publishes these billing numbers in a Medicaid Exclusion File, 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. In December 2014, HRSA issued a policy notice clarifying 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. HRSA also announced in the notice that it is working with CMS to develop guidance concerning duplicate discounts that may occur when 340B drugs are given to Medicaid managed care organization (MCO) patients. 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.

“Carve-Out”: The term “carve-out” is used 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 outside the 340B program any COD subject to a Medicaid rebate. 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. In 2009 and 2012, respectively, the California legislature and Illinois legislature prohibited 340B covered entities from utilizing the Medicaid carve-out.

Catastrophic Limit: The annual level of out-of-pocket spending that a Medicare Part D enrollee must incur before becoming eligible for catastrophic coverage. Part D enrollees receive 95 percent to 100 percent coverage during the catastrophic coverage phase.

Centers for Medicare and Medicaid Services (CMS): The federal agency within HHS that administers the Medicare and Medicaid programs, including the MDRP 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 the 340B database. HRSA implemented its new 340B OPAIS in September 2017 which resulted in fundamental changes to how covered entities provide and edit information in the database. The change request process has therefore been modified. The 340B OPAIS user guide can be found at https://www.hrsa.gov/sites/default/files/hrsa/opa/publicuserguide.pdf.

Chargeback: The method by which wholesalers typically process 340B and other discounts. 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)). Such hospitals are exempt from the Medicare inpatient prospective payment system. Section 6004 of the Deficit Reduction Act of 2005 (Pub. L. 1090171) added certain qualifying children’s hospitals to the list of covered entities eligible to participate in the 340B Drug Pricing Program. To qualify for 340B, a children’s hospital must (1) be owned or operated by or be under 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. HRSA published a final notice in the Federal Register in 2009 explaining how such hospitals can demonstrate eligibility and register to participate in the 340B Drug Pricing Program. The final notice can be found at https://www.hrsa.gov/sites/default/files/opa/programrequirements/federalregisternotices/childrenshospitals090109.pdf. HRSA uses “PED” (presumably for pediatric) as the entity type identifier for children’s hospitals on the 340B OPA database.

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 hospital that participates in the 340B program, as evidenced by the fact that it is reimbursable on the hospital’s Medicare cost report. 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. 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. A hospital does not need to register outpatient clinics/departments/services located within the four walls of the entity’s main hospital but may do so if it wishes. In implementing this guidance, OPA has taken the position that, to be 340B-eligible, a clinic/department/service’s costs must appear on a reimbursable line of a hospital’s most recently filed cost report. Non-hospital covered entities are also required to list on the OPA website all offsite locations where 340B drugs are purchased or provided. For non-hospital covered entities to purchase or provide 340B drugs at child sites, the sites must be within the scope of the covered entity’s grant and listed on the 340B database.

Civil Monetary Penalty (CMP): A fine that HHS is authorized under the Affordable Care Act to levy on manufacturers that knowingly and intentionally overcharge a covered entity for 340B drugs. On January 5, 2017, HRSA issued a final rule implementing its statutory authority to impose CMPs on manufacturers, as well as its penny pricing policy and methodology for calculating ceiling prices. The regulation would allow for a CMP of $5,000 for each instance in which a manufacturer “knowingly and intentionally” charges higher than the 340B ceiling price. The statute directs the Secretary to promulgate regulations implementing this authority by September 19, 2010. The final rule was originally set to become effective March 6, 2017, but the regulation had been delayed several times. On September 11, 2018 340B Health and three national hospital groups and three hospital systems filed a lawsuit against HHS over the continued delay of the implementation date of the 340B Ceiling Price and Manufacturer Civil Monetary Penalties rule. HHS responded by agreeing to implement the rule on January 1, 2019. 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.

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. Under this arrangement, 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. On March 5, 2010, HRSA published revised contract pharmacy guidelines allowing covered entities to contract with multiple contract pharmacies or to have both an in-house outpatient pharmacy and one or more contract pharmacies. Covered entities were previously prohibited from having a contract pharmacy if they operated their own outpatient pharmacy and, even in the absence of an in-house pharmacy, they were limited to one contract pharmacy arrangement per site. Contract pharmacies must carve-out FFS Medicaid, unless the covered entity, the contract pharmacy, and the State Medicaid agency have an arrangement to prevent duplicate discounts and notified OPA of the arrangement. Contract pharmacies must be listed in the OPA database. 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.

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 FQHCs; FQHC “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 (STD) clinics; HTCs; public housing primary care clinics; homeless clinics; Urban Indian clinics; and Native Hawaiian health centers. FQHC “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 one of the 46 jurisdictions with a Medicare Rural Hospital Flexibility (FLEX) Program (as of May 2016, Connecticut, Delaware, Maryland, New Jersey, and Rhode Island did not have such programs). CAHs are eligible for the 340B program if they are either publicly owned 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.

Deficit Reduction Act of 2005 (DRA): Federal legislation passed by Congress in 2005 and intended to help reduce the federal deficit. Among many other changes, the DRA significantly affected Medicaid and Medicare spending. Government payments to several health care provider groups, including physicians, hospitals, and pharmacies, were affected by the law, which also contained provisions aimed at reducing Medicare and Medicaid fraud, waste, and abuse. Several of the Medicaid measures within the DRA have had an impact on 340B providers. Among them are provisions adding freestanding children’s hospitals to the 340B program, requiring the collection of National Drug Codes and Medicaid rebates for physician-administered drugs, changes to the Medicaid drug rebate formula, phasing out average wholesale price-based reimbursement for outpatient drugs, and the narrowing of the Medicaid best price exemption for nominal prices.

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” 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 covered outpatient drug, 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 professional dispensing fee than for non-340B providers (81 Fed. Reg. 5171, 5317 (Feb. 1, 2016)).

Disproportionate Share Adjustment: See “Medicare DSH Adjustment Percentage.”

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. § 1395 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 eligible for both Medicare Part A and supplemental security income that the hospital serves on an inpatient basis. In order for a DSH to qualify for the 340B program, it must have a Medicare DSH adjustment percentage of more than 11.75 percent. A DSH that is designated by CMS as a rural referral center or sole community hospital may choose to participate in the 340B program under the criteria that are applicable to those types of hospitals.

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 discount to a state Medicaid agency after FFS Medicaid pays the covered entity for the drug and submits a rebate request to the manufacturer under the MDRP. Both the 340B and Medicaid rebate laws protect manufacturers from duplicate discounts. Under federal law, a covered entity must comply with the prohibition against FFS Medicaid duplicate discounts in one of two ways: (1) “carve-out” Medicaid drugs from its 340B purchases or (2) submit to OPA the numbers that it uses to bill 340B drugs to FFS Medicaid, so that states can exclude claims billed under those numbers from their rebate requests. In 2009 and 2012, respectively, the California legislature and Illinois legislature prohibited 340B covered entities from utilizing the Medicaid carve-out.

For most of the history of the MDRP, states could only collect rebates on Medicaid FFS drugs. The ACA expanded the MDRP to include managed care drugs but excluded 340B drugs from the expansion. In December 2014, HRSA issued a policy notice clarifying 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. HRSA also announced in the notice that it is working with CMS to develop guidance concerning duplicate discounts that may occur when 340B drugs are given to Medicaid MCO patients. 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. The Medicaid managed care rule can be found at https://www.gpo.gov/fdsys/pkg/FR-2016-05-06/pdf/2016-09581.pdf.

Federal Ceiling Price (FCP): The maximum price manufacturers can charge the Big 4 for FSS-listed brand-name drugs, even if the FSS price is higher. The Big 4 are the four largest purchasers of FSS drugs: the Department of Veterans Affairs, the Department of Defense, the Public Health Service, and the Coast Guard. FCP must be at least 24 percent below the non-federal AMP. FCP prices are not publicly available. According to a 2005 Congressional Budget Office (CBO) report, FCP prices available to the Big 4 are on average 49 percent of average wholesale price.

Federal Supply Schedule (FSS): The collection of multiple award contracts used by federal agencies, U.S. territories, Indian tribes, and other specified entities to purchase supplies and services from outside vendors. FSS prices for the pharmaceutical schedule are negotiated by the Department of Veterans Affairs and are based on the prices that manufacturers charge their “most-favored” non-federal customers under comparable terms and conditions. Because terms and conditions can vary by drug and vendor, the most-favored customer price may not be the lowest price in the market. FSS prices are publicly available. The CBO reports that FSS prices are on average 53 percent of average wholesale price.

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(1)(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(1)(2)(B)).

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)). Eleven hospitals are currently recognized as cancer hospitals nationwide. To qualify for 340B, a free‐standing cancer hospital must (1) be owned or operated by or be under 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.

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 prescribed.

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. Sole community hospitals, rural referral centers, and CAHs are not subject to the GPO prohibition.

GPO Prohibition: 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 and non-drug items like medical and surgical supplies. The GPO prohibition does not apply to rural referral centers, sole community hospitals, or CAHs. HRSA most recently published guidance on the GPO prohibition in February 2013, available at:http://www.hrsa.gov/opa/programrequirements/policyreleases/prohibitionongpoparticipation020713.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 health care 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.

HRSA 340B Program Audits: Audits conducted by HRSA to review covered entities’ compliance with 340B program requirements, including compliance with the GPO exclusion (as applicable), 340B patient definition, the duplicate discount prohibition, and accuracy of OPA database 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. 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 the Bizzell Group. HRSA is also authorized to audit drug manufacturers. As of January 5, 2019 HRSA has published the results of sixteen manufacturer audits. Background information on HRSA’s audit program and a summary of 340B audit results can be found on HRSA’s website: http://www.hrsa.gov/opa/programintegrity/index.html.

In-House Pharmacy: A pharmacy that is owned by, and a legal part of, the 340B entity. Per guidance published on the OPA website in 2012, if an in-house pharmacy is located within an offsite outpatient facility that also provides health care services and 340B drugs to its patients, the outpatient facility must be registered as a child site and the pharmacy must be listed as a shipping address of that outpatient facility. Pharmacies that support multiple outpatient facilities should be listed as shipping addresses under the parent entity. In-house pharmacies located inside the four walls of the parent entity are not required to be listed as shipping addresses. For more details, go to: http://www.hrsa.gov/opa/faqs/index.html.

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.

International Pricing Index (IPI) Model: On October 30, 2018, CMS published an advance notice of proposed rulemaking (ANPRM) seeking comments on its plan to implement an IPI demonstration model in an effort to lower drug prices. Under the IPI model, commercial entities or “model vendors” would purchase drugs from pharmaceutical manufacturers and then supply them to hospitals and physicians for a distribution fee. Model Vendors would be reimbursed at a “target price” that CMS would calculate to approximate international drug prices with the goal of reducing Medicare Part B drug spending by 30 percent. Hospitals and physicians would be reimbursed for administering the drugs in an amount comparable to the 6 percent add-on reflected in current ASP-based reimbursement (without sequestration). CMS would require participation by all hospitals and physicians in geographic areas (not selected yet) accounting for 50 percent of Medicare spending for separately payable Part B drugs. CMS suggests that during the first two years of the model, the model would include certain single source drugs and biologicals that are separately reimbursed by Medicare. The IPI Model has significant implications for 340B hospitals, including removing access to 340B discounts for drugs covered under the model. Comments on the ANPRM were due December 31, 2018. CMS expects to release a proposed rule on the model in the Spring of 2019 with the goal of phasing in the model over a five-year period, beginning in the Spring of 2020.

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 participate in 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, whether or not the manufacturer participates in the Medicaid rebate program. Furthermore, the Pharmaceutical Pricing Agreement provides that the term also includes any contractor that fulfills the responsibilities pursuant to the PPA. See www.hrsa.gov/opa/manufacturers/pharmaceuticalpricingagreement.pdf, (last visited March 26, 2018).

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, 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, but the CBO estimates that best price is on average 63 percent of average wholesale price.

Medicaid Exclusion File: 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 FFS Medicaid patient. Upon enrolling in 340B, a covered entity must inform OPA whether it will administer or dispense drugs purchased at a 340B price to FFS Medicaid beneficiaries. If a covered entity decides to use 340B drugs for FFS Medicaid beneficiaries, the entity must submit to OPA the numbers that it uses to bill such drugs, which the agency will list in the Medicaid Exclusion File. State Medicaid agencies may use that information to identify which claims to exclude from rebate requests to manufacturers.

The Medicaid Exclusion File was initially created to address Medicaid FFS claims only, as Medicaid managed care drugs were not then subject to rebates until recently. In 2010, 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 Medicaid exclusion file 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.) HRSA also announced in the notice that it is working with CMS to develop guidance concerning duplicate discounts that may occur when 340B drugs are given to Medicaid MCO patients. In April 2016, CMS issued its Medicaid MCO regulation mandating that states require MCOs to identify and exclude 340B claims from the utilizations 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, CMS said 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. The Medicaid Exclusion File 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. According to a 2005 CBO report, the average Medicaid rebate net price is 64 percent of average wholesale price.

Medicare Cost Report Test: The test used by OPA to determine whether the 340B eligibility of a hospital extends to outpatient facilities that are affiliated with that hospital. Under the Medicare cost report test, a hospital-affiliated outpatient facility is part of the hospital and is, therefore, 340B-eligible if the facility’s costs and charges are listed on a reimbursable outpatient or ancillary line of the hospital’s Medicare cost report. OPA takes the position that, to be 340B-eligible, an outpatient facility’s costs and charges must appear on a reimbursable line of a hospital’s most recently filed 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 PPS 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 rural referral centers and sole community hospitals 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 PPS 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 PPS and do not receive DSH payments. However, in contrast to children’s and cancer hospitals, CAHs, which also are exempt from PPS, are not subject to minimum DSH adjustment percentages to qualify for 340B.

Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA): Legislation passed by Congress in 2003 that introduced the most sweeping amendments to the Medicare program since the start of the program. The MMA included the creation of a new outpatient drug benefit called Medicare Part D, revitalization of the Medicare managed care program, payment methodology changes for virtually every Medicare provider, contracting and appeals reform, and establishment of health savings accounts. The MMA increased the DSH payment percentage for small urban hospitals (<100 beds) and rural hospitals (<500 beds). As a result, more hospitals have a DSH adjustment percentage that qualifies them for the 340B program. The MMA also amended the best price exclusion to allow manufacturers to exclude from best price voluntary inpatient sales to DSH hospitals.

Medication Therapy Management (MTM) Program: A program of professional services aimed at (1) optimizing therapeutic outcomes through improved medication use and (2) decreasing adverse drug interactions. Under the Part D benefit, each prescription drug plan must include an MTM program that is available to certain targeted beneficiaries with multiple chronic diseases (e.g., diabetes, congestive heart failure, and hypertension), who are taking multiple Part D drugs, and who could incur annual costs in excess of targeted levels. MTM services may include medication consultations and other services traditionally offered by pharmacists, but MMA regulations permit MTM services to be offered by qualified providers other than pharmacists.

Mega-Guidance (also known as the “Omnibus Guidance): In August 2015, HRSA 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 cardiac catheterization labs.

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 on which rebates and supplemental rebates are due.

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 drugs to submit their NPIs and Medicaid billing numbers for inclusion in OPA’s Medicaid Exclusion File to help prevent duplicate discounts, which occurs when a manufacturer pays both a 340B discount and rebate on the same drug given to a FFS Medicaid patient. State Medicaid programs and manufacturers use the information in the file, including NPIs, to identify which covered entities’ claims should be excluded from states’ rebate requests to manufacturers.

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 DRA, 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 the Secretary 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.

Non-Federal Average Manufacturer Price (Non-FAMP): The average price paid to a manufacturer by wholesalers for drugs distributed to non-federal purchasers. The Big 4 are entitled under federal law to discounts on brand-name drugs of at least 24 percent off of non-FAMP. Non-FAMP pricing is not publicly available.

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. Details regarding noninnovator 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. 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 drug discount program. OPA is located within HRSA’s Healthcare Systems Bureau and is located at HRSA headquarters in Rockville, MD.

Offsite: 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. Note that an “offsite” clinic for 340B purposes may be on the hospital’s campus for Medicare provider-based purposes.

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, sole community hospitals, rural referral centers, 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.

On July 23, 2013, HRSA published a final regulation stating that the exclusion applies only when an orphan drug is used to treat the rare condition or disease for which the drug received its orphan designation, but not when that orphan drug is used to treat other indications. The regulation went into effect October 1, 2013, and the Pharmaceutical Research and Manufacturers of America (PhRMA) filed a lawsuit in federal district court to prevent the regulation from going into effect. The court issued an opinion in May 2014 vacating the regulation on the grounds that HHS did not have rulemaking authority to issue the regulation. HRSA re-issued its policy as an interpretive rule on July 23, 2014. On October 9, 2014, PhRMA filed a second complaint against HHS again challenging the agency’s interpretation of the orphan drug exclusion. The U.S. District Court for the District of Columbia issued an opinion on October 14, 2015, vacating the interpretive rule on the grounds that it was contrary to the plain language of the 340B statute and, therefore, the interpretation was arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with the law. The federal government did not appeal the court’s decision. OPA has not issued new guidance regarding the orphan drug exclusion, but the agency did clarify 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 changing reimbursement for most separately payable drugs from ASP plus 6 percent to ASP minus 22.5 percent if the hospital purchased the drug through the 340B or PVP programs, effective January 1, 2018. The reimbursement cut does not apply to rural sole community hospitals, critical access hospitals, children’s hospitals, and cancer hospitals participating in the 340B program and at the time, did not apply to certain recently opened, off-campus clinics. In November 2017, a lawsuit was filed to challenge the rule, and bipartisan legislative efforts were pursued to reverse or delay the change. In late December 2017, the lawsuit was dismissed on procedural grounds and the regulation went into effect on January 1, 2018. On January 9, 2018, the hospital groups that filed the lawsuit appealed the court’s decision to dismiss the case but lost on appeal. In September 2018 the hospital groups refiled the lawsuit and addressed the procedural issues raised in the prior lawsuit by challenging payments made on specific claims. Beginning January 1, 2019, CMS expanded the scope of these cuts to include 340B drugs administered in certain off-campus hospital clinics, often referred to as “site-neutral” clinics. Rural sole community hospitals, critical access hospitals, children’s hospitals, and cancer hospitals were still exempted from the pay cuts. On December 27, 2018 the U.S. District Court for the District of Columbia ruled in favor of the hospitals and found that HHS exceeded its authority by reducing payments to 340B hospitals. The court, however, did not reverse the cuts that already took effect in 2018 and instead ordered further hearings to determine a proper remedy for the $1.6 billion payment in cuts made in 2018. As of January 2, 2019, the administration has not stated whether or not it intends to appeal the decision. The ruling does not immediately affect how hospitals bill Medicare and does not yet affect 2019 payment rates because the lawsuit did not explicitly challenge the 2019 rule as no one had yet submitted claims under the 2019 rule. Additional legal action in this area is expected.

Parent Entity: The main facility of the covered entity 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 entity’s main facility and are located outside the four walls of the main hospital must be separately registered as “child sites” with OPA before they can begin using 340B drugs.

Patient Protection and Affordable Care Act (PPACA): In 2010, Congress passed two important pieces of health legislation – PPACA, sometimes referred to as the ACA, and the Health Care and Education Reconciliation Act. PPACA was enacted with the goals of increasing the quality and affordability of health insurance, reducing the number of uninsured Americans and controlling health care costs. PPACA also made extensive changes to the 340B program. PPACA added free-standing cancer hospitals, rural referral centers, sole community hospitals, and CAHs as covered entities, while also conferring formal 340B status to free-standing children’s hospitals. PPACA also added a number of program integrity provisions designed to ensure that 340B program requirements are appropriately enforced for both covered entities and manufacturers. Among the integrity provisions established under PPACA are: requiring covered entities to annually recertify their eligibility to participate in the 340B program, giving covered entities access to 340B ceiling price information, authorizing HRSA to impose fines on manufacturers, and making HRSA’s informal dispute resolution process formal and mandatory for all parties. In addition, PPACA increased the minimum rebate percentages for both the Medicaid rebate and 340B programs and modified the way that average manufacturer price is to be calculated in determining reimbursement, Medicaid rebates, and 340B discounts.

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

Patient Assistance Program (PAP): Programs offered by drug manufacturers to low-income individuals in which free drugs and/or other forms of assistance are donated to individuals who lack drug coverage, fall below designated income levels, and 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 policy 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 unit rebate amount. Because the 340B ceiling price is a drug’s AMP minus the unit rebate amount and a drug’s unit rebate amount 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 unit rebate amount 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. HRSA included its longstanding penny pricing policy in the final CMP rule published January 5, 2017, but then delayed the rule’s effective date five times. On September 11, 2018, 340B Health and three other national hospital groups and three hospital systems filed a lawsuit against HHS over the repeated delay of the implementation date of the CMP rule. HHS responded by subsequently finalizing the rule on January 1, 2019. 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. At the time HRSA republished the addendum, it also announced that it would not require manufacturers to submit ceiling price data until it had launched its secure website allowing covered entities to access that data. On November 30, 2018, HRSA announced that it planned to begin collecting pricing data in the first quarter of 2019 and that the secure website would be available on April 1, 2019. 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 drugs 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 Part D drug program.

Physically Segregated Inventory: A method used by covered entities to comply with the 340B anti-diversion requirement by keeping their 340B drugs physically separate from their non-340B drugs. In a physically segregated inventory system, safeguards must be established to prevent comingling of the two inventories and to allow the borrowing of drugs between inventories only in emergency situations. Physically separate inventories are an alternative to virtual inventory systems which are another common method used by covered entities for managing their 340B drugs. See definition of “Three-Way Virtual Inventory Management.”

Physician-Administered Drugs: 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. Pursuant to the DRA, state Medicaid agencies are required to collect NDCs for physician-administered drugs to facilitate states requesting rebates from manufacturers for those drugs under the MDRP. In implementing the reporting requirements, CMS has mandated that NDCs be collected both for drugs administered in physicians’ offices and drugs administered in hospital outpatient settings. However, as a result of litigation brought by 340B hospitals and a settlement reached with CMS, the agency issued an October 2009 transmittal to state Medicaid programs acknowledging that hospitals billing Medicaid for physician-administered drugs at their “purchasing costs as determined under the state plan” cannot be mandated under federal law to submit NDCs.

Preferred Drug List (PDL): Medicaid prohibits states from utilizing formularies that would otherwise allow states to exclude listed non-formulary drugs from Medicaid coverage. Instead, the Medicaid law permits states to use PDLs. These are lists of drugs for which prior authorization and step-therapy restrictions can be applied. Such procedures do not bar the use of non-preferred drugs, but discourage doctors from writing prescriptions for those drugs because of the administrative burden imposed. The use of non-preferred drugs also is discouraged through the imposition of higher levels of patient cost-sharing.

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, such revenue is considered program income because it is generally considered to have been earned as a direct result of the grant. 340B 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.

Prompt Pay Discounts: CMS defines a customary prompt pay discount as any discount off the purchase price of a drug routinely offered by the manufacturer to a wholesaler for prompt payment of purchased drugs within a specified timeframe and consistent with customary business practices for payment. The DRA redefined the definition of AMP to exclude prompt pay discounts that drug manufacturers extend to wholesalers. CMS codified the exclusion of the customary prompt pay discounts extended to wholesalers from the AMP calculation in the COD rule released February 1, 2016.

Provider-Based Regulations: 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 part of the provider, it must be provider-based. Its relationship with the main provider must meet 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. Under HRSA guidance, a hospital offsite clinic/department/service is eligible to participate in the 340B program if it is an integral part of a hospital that participates in the 340B program, as evidenced by the fact that it is reimbursable on the hospital’s Medicare cost report. To appear on a reimbursable line of the hospital’s Medicare cost report, the clinic/department/service must meet the provider-based rules.

Provider Dispensing: The dispensing of drugs by providers rather than by pharmacies. Regulation of provider dispensing varies by state. States may require licensure of providers that dispense, may limit the provider’s dispensing activities to state-licensed “dispensaries,” may license the dispensary, may require a pharmacist consultant to be on record for the provider, or may rely on a combination of these requirements.

Recertification: The annual process by which providers participating in the 340B program review and update their information in a database maintained by HRSA. The process also includes several certification statements related to 340B program compliance. Under the original 340B law, only certain categories of covered entities were subject to recertification, but the ACA required HRSA to extend recertification to all types of covered entities.

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 publicly owned or be 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.

Section 603 of the Bipartisan Budget Act of 2015 (BBA 2015): Section 603 of the BBA 2015 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 are not affected by this reimbursement reduction authorized by BBA 2015. In a separate rulemaking, however, CMS implement 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 supplier or services from their state and local health departments through the Sexually Transmitted Disease Control Program administered by the Centers for Disease Control and Prevention. 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 parent or child site and registered as such on the OPA website. Pharmacies are not permitted to be registered as covered entity sites, but they may be listed as shipping addresses of the parent entity or a registered outpatient child site, depending on the locations served by the pharmacy. When registering a new covered entity or a new outpatient facility online, the entity has a choice of listing shipping addresses under either the main entity’s registration or the offsite facility’s registration. Listing shipping addresses permits all parties to know where 340B drugs may be delivered by the manufacturer and wholesaler. Per guidance published on the OPA website in 2012, if a pharmacy is located within an offsite outpatient facility that also provides health care services and 340B drugs to its patients, the outpatient facility must be registered as a child site and the pharmacy must be listed as a shipping address of that outpatient facility. Pharmacies that support multiple outpatient facilities should be listed as shipping addresses under the parent entity. (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 AMP minus 23.1 percent for that drug or if the price of the drug has increased more quickly 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 distant 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 either be publicly owned or be a private nonprofit institution with a contract with state or local government to serve non‐Medicare and non‐Medicaid, low-income patients.

Specialty Drugs: High-cost prescription medications used to treat complex or rare chronic conditions. Specialty drugs typically require special handling, administration, or monitoring.

Specialty Pharmacy: A pharmacy that distributes specialty drugs. See definition of “Specialty Drugs.”

Split-Billing Software: Software used by a 340B hospital to help manage two or more drug inventories that are physically co-mingled but kept virtually separate using a replenishment system.

State Pharmaceutical Assistance Program (SPAP):A state-administered program that provides assistance with pharmaceutical benefits to disabled, indigent, low-income elderly, or other financially vulnerable persons that wrap around the Part D program. These programs rely on state, local, and private funding rather than federal funding. Since 2007, under the Part D program, SPAPs may provide payment of premiums or beneficiary cost sharing. Cost sharing by SPAPs that meet certain criteria (such as non-discrimination against particular Part D plans) counts as true out-of-pocket spending, thereby ensuring that the beneficiary is not delayed in reaching the "catastrophic limit." Once the beneficiary reaches the limit, most of the beneficiary's drug costs are covered by Medicare.

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.

Termination Date: The date in the OPA database 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 the OPA database. 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 the OPA database.

Three-Way Virtual Inventory Management: A system of maintaining a virtual drug inventory. Under such a system, a hospital maintains a single physical inventory, and drugs are initially purchased at non-340B, non-GPO prices (e.g., WAC) and then replenished selectively based on use: GPO drugs for inpatient use, non-GPO/WAC for non-eligible outpatient use, and 340B drugs for eligible outpatient use. Covered entities applying this system often purchase split-billing software to help track these different inventories.

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 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 Centers for Disease Control and Prevention 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) as a way 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 pediatrics 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.

VA National Contract Price: The price that the Department of Veteran Affairs (VA) has obtained through competitive bids from manufacturers for select drugs in exchange for their inclusion on the VA formulary. Because the VA is already entitled to federal ceiling prices under federal statute, VA national contract prices are even lower than federal ceiling prices and are often the lowest prices in the nation. These prices are publicly available. According to a 2016 Apexus price comparison chart, VA pricing is 42 percent of average wholesale price.

Value-Based Purchasing: A type of arrangement between a health care payer and a supplier or provider that ties payment 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.

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. A few states use markups of WAC in setting Medicaid reimbursement.

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 Assistant Counsel Amanda Sellers Smith at 202-552-5861 or amanda.smith@340bhealth.org.