Under the federal government’s 340B Discount Pricing program, participating healthcare providers (a.k.a. covered entities) are able to buy certain outpatient drugs at deeply discounted prices. Pharmaceutical companies are not allowed to charge covered entities any more than the ceiling price. That begs the question of how the ceiling price is determined.

Ultimately, ceiling prices are determined by the Health Resources and Services Administration (HRSA). Prices are analyzed and recalculated every quarter, using data from the quarter before. The HRSA’s price calculation formula is pretty simple: the average manufacturer price (AMP) minus the unit rebate amount (URA) equals the 340B ceiling price.

More About AMP and URA

Determining the AMP requires looking at the prices of every manufacturer that sells the drug in question. This obviously indicates that we are talking mainly about name brand drugs and their generic equivalents. You average all their prices together for the previous quarter and that becomes the AMP for the next quarter’s calculation.

As for the URA, it is the discount pharmaceutical companies are required to give participants of the 340B program. Incidentally, it is the same discount applied to government purchasers of the same drugs. It is not clear how HRSA comes up with this number.

Who Must Offer the Discounts

It should be noted that 340B program rules do not apply to every entity involved in buying and selling prescription medications. As far as providing the discounts are concerned, that falls on pharmaceutical companies.

Any pharmaceutical company that sells covered outpatient drugs to government buyers at a discount must make the same drugs and discounts available to healthcare providers enrolled in the 340B program. Pharmaceutical companies that do not meet this particular requirement are not obligated to offer the discounts.

Furthermore, there is some dispute as to whether pharmaceutical companies only need to provide the discounts directly to enrolled 340B participants or must also provide them to contracted pharmacies that sell the covered drugs on behalf of a 340B participant.

Who Gets the Discounts

Program rules dictate that the discounted drugs go to certain types of healthcare facilities that serve primarily low-income patients and underserved communities. Program participants are divided into half-a-dozen categories including disproportionate service hospitals (DSH). As it turns out, DSHs account for most of the discounted drug sales under the program.

To be considered a DSH, a hospital must receive Medicare and Medicaid funding. It must also provide a disproportionate share of its services to underserved communities. DSHs and other covered entities, though not required to do so, often partner with firms like Florida’s Ravin Consultants to implement their 340B drug discount programs and maintain compliance.

Expert 340B consulting services often prove invaluable to keeping a program on track. Through things like mock audits and program optimization, consulting partners work with covered entities to maintain compliance at all times.

30 Years of Savings

Because the ceiling prices are so low compared to retail, the 30+ year old 340B program has resulted in hundreds of billions of dollars in savings since its inception. Those savings ostensibly go toward expanding healthcare access to the uninsured and underinsured. However, the program is not without its critics. It has become a highly controversial program thanks to allegations of abuse and profiteering.

Any healthcare provider eligible to participate in 340B but not yet doing so should look into it. Low 340B ceiling prices can make a world of difference when federal health care dollars are stretched thin. Saving on prescription medications helps those dollars go further. At least that was the theory when 340B was launched way back when.