Helping Small Organizations Meet the 340B Challenge


Many smaller organizations rely on the 340B program to continue serving their communities – and they can’t afford penalties for noncompliance.

Shannon Sumner, CPA, CHCComplying with all the provisions of the 340B Drug Pricing Program (340B) is a complex, rigorous undertaking – even for large, well-staffed hospitals and health systems. It’s equally burdensome for facilities that are small and have limited resources such as critical access hospitals (CAHs), federally qualified health centers (FQHCs), HIV/AIDS program grantees, and others.

Many of these smaller organizations rely on the 340B program in order to continue serving their communities – and they can’t afford the penalties for noncompliance, like having to make repayments to drug manufacturers or possibly being removed from the program entirely.

FQHCs provide vital services to the homeless, migrant workers, and residents of so-called “pharmacy deserts” – communities that lack even a single retail or clinical pharmacy. CAH facilities are aptly named because they provide critically needed access to care for rural patients – and many don’t have the resources for an onsite pharmacy. Both types of covered entities frequently contract with retail pharmacies, which sends up red flags for possible audit of their 340B programs.

Unfortunately, 340B compliance is getting more complicated and time-consuming every year. The Health Resources and Services Administration (HRSA) will soon be finalizing its 340B “Mega Guidance,” which will make the task even more challenging.

But here’s the good news for these smaller organizations: they just need a little help on the front end in order to become self-sufficient in 340B compliance. Once a control structure is in place, the job gets much easier. But it’s imperative for these organizations to get the baseline assessment and training needed to create a strong foundation for compliance.

How The Program Has Evolved

The 340B program establishes a mechanism for eligible safety-net healthcare providers to purchase drugs for certain outpatients at a significant discount. The safety-net providers get the benefit of any savings and revenue from the discount. Drugs purchased at the reduced prices may be provided only to eligible patients.

Critics of the program contend it is not currently serving its purpose because some of the providers who participate (and benefit from the savings and revenue) actually provide little benefit to indigent populations. The program’s supporters, on the other hand, generally support a tightening of program oversight, but maintain that the program does in fact provide additional revenues to safety-net providers so they can better serve their communities.


The safety-net healthcare covered entities eligible to participate in the program fall into two categories:


  • Certain federal grantees such as hemophilia treatment centers, FQHCs, and Ryan White programs

  • Certain hospitals, including disproportionate share hospitals (DSHs), children’s hospitals, CAH facilities, free-standing cancer hospitals, rural referral centers and sole community hospitals.


A covered entity bears the responsibility of compliance with the myriad (and often vague) program requirements. Furthermore, both HRSA and participating drug manufacturers have the right to audit covered entities for compliance.

Here are some of the 340B compliance risk areas that small healthcare organizations need to monitor:

Covered entity identification and compliance – CAH facilities do not have to provide disproportionate share adjustment percentages, but they are subject to orphan drug exclusion.

Eligible patients and the risk of diversion – The 340B discount is available only for dispensations to eligible patients. An individual is not considered a patient of the covered entity for purposes of 340B if the only healthcare service received by the individual is the dispensing of a drug or drugs for subsequent self-administration or administration in the home setting.

Medicaid duplicate discounts and state-specific rules – If a covered entity participates in the 340B program and also treats Medicaid beneficiaries, it must determine whether it will dispense 340B drugs to Medicaid patients (“carve in”) or use other drug sources for Medicaid patients (“carve out”).

Contract pharmacies – HRSA guidelines permit covered entities to contract with multiple outside pharmacies to dispense 340B drugs. The guidelines list 12 “essential elements” for a covered entity’s contracts with pharmacies.

Compliance Requires Education and Structure

FQHC and CAH facilities – along with grantee clinics and sole community hospitals – are providing high-quality care to underserved communities that desperately need those services. The last thing these organizations need is to lose the ability to participate in the 340B program.

With the proper front-end guidance and structure, however, these community heroes can learn to effectively manage and monitor their 340B programs. As they become more self-reliant, they can direct more resources to providing urgently needed services.

Shannon Sumner, CPA, CHC, is a consulting principal at  PYA (Pershing Yoakley & Associates), a healthcare consulting firm serving clients in all 50 states.

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