340B Drug Discount Program Compliance


Changes in the healthcare industry have increased the scope and complexity of a healthcare organization’s compliance related risks.

This is evident in Federally Qualified Health Centers (FQHCs) which are “safety-net” providers and are eligible for various federal programs. FQHCs need to protect themselves from regulatory violations by developing applicable processes and procedures to minimize risks. This article will focus on FQHC’s participation in the 340B Drug Discount Program (“340B Program”) and related compliance risks such as tracking of 340B Program drugs and contract pharmacy relationships. We will also discuss FQHCs processes and procedures to mitigate those risks.

Background of 340B Program

Section 340B of the Public Health Service Act (42 U.S.C. § 256b) was implemented by Congress in 1992 through enactment of Public Law 102-585, Section 602. The 340B statute requires pharmaceutical manufacturers to enter into an agreement with the Department of Health and Human Services (HHS) to provide discounts on “covered outpatient drugs” purchased by certain providers called “covered entities” that serve the nation’s vulnerable patient populations as a condition of their drugs being reimbursable by Medicaid and Medicare Part B. HHS is responsible for administration and oversight of the 340B program through the Office of Pharmacy Affairs (OPA) within the Health Resources and Services Administration (HRSA).

FQHCs, by enrolling in the 340B Program, can obtain substantial savings on prescription drugs provided to patients in the office and through third-party retail pharmacies. Participation in the 340B Program is elective, and the covered entities are required to attest to 340B Program compliance on an annual basis. 340B covered entity status does not encompass all of a participating provider’s operations; instead, a covered entity is only permitted to dispense covered outpatient drugs to eligible patients. Dispensing or transferring a 340B Program-purchased drug to any other person or entity is considered diversion, which can lead to significant penalties for the FQHC.

Patient Eligibility

Determination of patient eligibility to receive 340B Program-purchased drugs include the following:

  • Covered entity has established a relationship with the individual, such that the covered entity maintains records of the individual patient’s health care
  • Individual patient receives health care services from a health care professional who is either employed by the covered entity or provides health care under contractual or other arrangements (e.g. referral for consultation) such that responsibility for the care provided remains with the covered entity
  • Individual patient receives a health care service or range of services from the covered entity which is consistent with the service or range of services for which a federally qualified health center status has been provided to the entity

Tracking of 340B Program Drugs

HRSA is requiring FQHCs to be able to agree to specific drug purchases and administrations/dispensations to specific episodes of care as documented in the patients’ medical records. This can create tracking issues when FQHC operations are located with non-FQHC operations and the health center uses a decentralized drug inventory system and also has floor stock stored outside a central licensed pharmacy.

Covered entities must establish a system to keep track of their inventories of 340B drugs and not dispense 340B drugs to ineligible patients. When the FQHC maintains a separate physical inventory of 340B drugs, it is critical that clinical employees be trained to understand the distinction between 340B and non-340B inventories and have appropriate guidance in determining which to use.

Some FQHCs have established a software-based virtual inventory system which includes the dispensing drugs from a central stock and then determining whether to replenish the stock under the 340B Program based on the characteristics of the dispensing event (e.g., the identity of the patient, the eligibility of the drug for inclusion in the 340B Program, and whether the 340B price is the best price available to the FQHC).

The following are risk mitigation procedures related to tracking of 340B-purchased drugs:

  • Update applicable policies to reflect current compliance requirements
  • Review the floor stock practices and guidelines that are used by staff responsible for choosing which inventory to use when a drug is dispensed
  • Communicate with staff to determine if drugs are stocked away from the central pharmacy can be attributed to 340B eligible patients
  • Test a sample of 340B Drug transactions to determine if the FQHC is able to determine the source of particular drugs
  • Audit clinicians’ records for FQHCs that maintain virtual 340B inventories to ensure that patients who received floor stock drugs can be reliably identified

Contract Pharmacy Relationships

HRSA permits FQHCs to dispense its own 340B covered drugs through a separately licensed pharmacy owned by another entity, including both pharmacies located within the four walls of the FQHC and for-profit retail pharmacies located outside of the FQHC. The FQHC must document the relationship between the covered entity and the contract pharmacy and the covered entity records the relationship in the HRSA 340B database.

It is not unusual for a retail pharmacy to have a 340B contract pharmacy relationship with several 340B covered entities. When this occurs, a single patient will qualify as a patient of more than one 340B covered entity. Complications can occur as to which entity’s virtual stock is used to supply the patient with their prescription.

The following are risk mitigation procedures related to contract pharmacy relationships:

  • Review the licensure status of pharmacies operating within the FQHC
  • Evaluate the agreements between the FQHC and its contract pharmacies and ensure that contract pharmacies are complying with recordkeeping, diversion, and other operational requirements
  • Check the FQHC’s enrollment records in the HRSA 340B database to determine if the pharmacy is appropriately listed as a contract pharmacy and that a compliant 340B contract pharmacy agreement is in place


Monitoring your 340B Drug Program will be critical to meet the challenges of complying with the ever-changing healthcare regulations and avoid significant fines and penalties.

Withum recommends that your FQHC assess the effectiveness of the tracking and record keeping of 340B drug purchases and dispensations. In addition, contract pharmacy relationships should be analyzed to ensure they are abiding by 340B Program requirements.

For more information on this topic, please contact a member of
Withum’s Healthcare Services Group by filling out the form below.

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