340B Terminology: Understanding All the Key Words and Acronyms

Sep 30, 2016 3:34:00 PM · by David Kushan

If you’re looking into the 340B discount program, it’s important to understand the relevant 340B terminology. This 340B glossary of terms gathers some of the most significant concepts and acronyms to help those interested in the 340B program navigate its complexities.

Eligibility-Related Terms

Here are the acronyms of key types of facilities that are eligible for 340B coverage:

CAH – critical access hospital

CAN – free-standing cancer hospital

DSH – disproportionate share hospital

FQHC – federally qualified health center

PED – children’s hospital

RRC – rural referral center hospital

SCH – sole community hospital

A full list of eligible entities can be found here.

340B covered entity – An organization that is able to purchase 340B discount drugs and is listed in the HRSA 340B Database for verification purposes; each entity is provided a unique ID number used to purchase 340B drugs.

DSH rate (disproportionate share rate) – This is important to determining eligibility and calculated by adding the percentage of Medicare SSI patient days (of all Medicare days) to the percentage of Medicaid patient days (of all patient days); certain hospitals must meet a minimum threshold to become 340B certified (11.75% for DSH, PED, and CAN; 8% for RRC and SCH) 

[Related: Download Our White Paper for Actual Examples of DSH Rate Calculations and More]

HRSA (Health Resources and Services Administration) – The agency in the HHS that is mandated with “improving access to health care services for people who are uninsured, isolated, or medically vulnerable”; OPA (Office of Pharmacy Affairs), which runs the 340B program and handles applications, falls under its umbrella.

Implementation/Compliance Terms

In-house pharmacy – a pharmacy that is owned by and a legal part of the 340B entity; in most cases, the entity owns the pharmacy license

Authorizing Official: The individual designated in OPA’s covered entity database as the 340B representative of the covered entity. The Authorizing Official must be someone who can legally bind the organization and attest to its compliance with 340B Program requirements. 

Contract pharmacy – Pharmacy that a 340B covered entity may contract with to provide services, such as dispensing the entity-owned 340B drugs; 340B entities may contract with multiple pharmacies but must have a written contract with all of them, ensure compliance, and list them on the 340B Database.

Bill-to/Ship-to – An arrangement in which the drug manufacturer bills the 340B entity but ships to a contract pharmacy; this is typical in most contract pharmacy situations.

Duplicate discount is a prohibited practice in which a 340B covered entity receives a 340B discount and then also applies for a Medicaid rebate for the same drug.

Medicaid Carve In/Carve Out – A 340B entity can choose whether to use 340B drugs for Medicaid patients (Carve In) or, instead, to use non-340B drugs for these patients (Carve Out). Organizations using Carve In must be included in the Medicaid Exclusion File, a HRSA-managed database that helps prevent duplicate discounts. In some cases, Carve Out can provide better reimbursements rates.

Orphan drugs are used to treat a rare disease or condition, as designated by the FDA. Under the Orphan Drug Exclusion, CAH, CAN, RRC, and SCH hospitals cannot purchase these drugs at 340B prices but can choose to “opt-in” in order to purchase such drugs for a non-orphan indication. In such cases, auditable records must be maintained to show compliance.

Split billing software – Computer software used by 340B entities that use multiple wholesaler contracts for drug purchases and allows the entity to track and split 340B-eligible patient dispensations from non-340B dispensations. In many cases, it is advisable to have a 340B consultant to ensure the system complies with the standards of the 340B program and is ready for any potential audits.

PVP (Prime Vendor Program)The original 340B statute required HHS to create a "prime vendor" program for the entities participating in the 340B drug discount program. The prime vendor’s key responsibilities are to negotiate prices below the 340B ceiling price and provide distribution services for covered entities that choose to join the program. As of September 2012, the prime vendor’s duties were expanded to include providing technical assistance to covered entities. The prime vendor works with a variety of wholesalers in the distribution of pharmaceuticals and provides other value-added services (e.g., vaccines). HRSA has a contract with Apexus to serve as the prime vendor. 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.

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.

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.

Recertification - The annual process by which 340B providers review and update their information in a database maintained by OPA. The process also requires a hospital’s authorizing official to certify that the hospital complies with 340B requirements.

Drug Pricing Terms

AMP (average manufacturer price) is the average unit price paid in the U.S. to the manufacturer by wholesalers for drugs distributed to the retail pharmacies; this is used to calculate the ceiling price.

URA (unit rebate amount) – the amount of Medicaid rebate per each unit of a drug; it is subtracted from the AMP to obtain the 340B ceiling price in many cases.

340B ceiling price – the maximum price drug manufacturers can charge for a 340B-purchased drug, calculated by subtracting URA by AMP for generic drugs and using a more complicated calculation for brand-name drugs.

BP (Medicaid best price) - the lowest manufacturer price paid for a prescription drug by any purchaser; in many instances, this is used to calculate the 340B ceiling price for brand-named drugs [AMP minus (AMP minus BP)].

Learn everything you need to know about applying for the 340B discount drug program by downloading our white paper "How to Become a Federally Qualified 340B Health Center or Covered Entity".

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