The Long-Awaited 340B Drug Pricing Program Omnibus Guidance: Part II

Covered Entity Eligibility, Registration and Termination

September 9, 2015

This is the second in a series of updates addressing the 340B Drug Pricing Program Omnibus Guidance published by the Health Resources and Services Administration (HRSA) on August 28, 2015 (Guidance). The proposed Guidance clarifies various aspects of covered entity and drug manufacturer compliance with Section 340B of the Public Health Service Act (PHSA); topics that are currently addressed in a number of HRSA guidance documents published in the Federal Register dating back to 1992. This update addresses issues of covered entity eligibility, registration and termination from the 340B Drug Pricing Program (340B Program).

Together the PHSA and the Affordable Care Act (ACA) enumerate the following types of entities that are eligible to participate in the 340B Program and receive applicable discounts on covered drugs (Covered Entities):

(a) Non-hospital entities that receive certain federal grants, federal contracts, federal designations or establish federally-funded projects (e.g., FQHCs, family planning clinics, black lung clinics, hemophilia clinics, state-operated AIDS drug purchasing programs and STD clinics);

(b) Certain hospital entities that fall into one of the following three categories:

(i) Government owned or operated hospitals;

(ii) Public or private nonprofit hospitals that have been granted government powers (e.g., authority to tax, issue bonds, provide health care on the government’s behalf); or

(iii) Private nonprofit hospitals that contract with state or local government to provide health care services to low-income individuals who are not eligible for Medicare or Medicaid;

(c) Children’s hospitals;

(d) Freestanding cancer hospitals;

(e) Rural referral centers (RRCs); and

(f) Sole community hospitals (SCHs).

Additionally, hospitals in category (b) that are eligible for disproportionate share hospital status, children’s hospitals, and freestanding cancer hospitals must also have a Medicaid disproportionate share adjustment greater than 11.75 percent, and RRCs and SCHs must have a disproportionate share adjustment greater than 8 percent in order to participate in the 340B Program. For hospitals that qualify under more than one Covered Entity type, the Department of Health and Human Services (HHS) will list a hospital under only one type at a time on the 340B Program Data Base maintained by HHS. If the hospital loses eligibility under the listed type, it must submit a new registration application for another type during the regular enrollment period.

A health care entity that falls into one or more of the above categories may make application to HRSA for inclusion in its 340B Program Database as a Covered Entity. The proposed Guidance explains the documentation and certification necessary to establish that an applicant falls into the Covered Entity categories listed above. Eligibility for participation in the 340B Program is strictly limited to those types of entities listed in the PHSA and the ACA. The inclusion of an otherwise non-eligible entity in a larger organization that includes one or more eligible Covered Entities (i.e., an accountable care organization) will not cause the otherwise non-eligible entity to become eligible.

The proposed Guidance also explains that a clinic or hospital Covered Entity (referred to as a “parent site”) may have one or more off-site clinics or outpatient facilities (referred to as “child sites”) that may also be eligible to participate in the 340B Program, provided the various entities satisfy certain requirements outlined in the Guidance.

HRSA accepts applications for enrollment in the 340B Program only during the following four quarterly application periods:

October 1 – October 15

for a January 1 start date

January 1 – January 15

for an April 1 start date

April 1- April 15

for a July 1 start date

July 1 – July 15

for an October 1 start date

The PHSA requires HHS to establish an annual recertification process for all Covered Entities during which Covered Entities must certify the accuracy of their information on the 340B Data Base and their compliance with statutory requirements. According to the Guidance, by making such certification the Covered Entity attests that it uses “effective business practices to ensure and monitor ongoing compliance, including self-audits where appropriate,” maintains accurate 340B Data Base information and notifies HHS of loss of eligibility or noncompliance with 340B Program requirements.

The Guidance clarifies that each Covered Entity is obligated to notify HHS in the event that it or a child site is no longer eligible to participate in the 340B Program. When eligibility is lost, HHS will list the Covered Entity’s or child site’s termination date on the 340B Program Data Base. If a parent site loses eligibility, all associated child sites and contract pharmacies will also be terminated. A child site may, however, lose eligibility without loss of parent site eligibility in certain circumstances.

The Guidance states that a Covered Entity that notifies HHS of loss of eligibility will be expected to give the reason for and the effective date of the loss, and the date the last 340B drug purchases were made. Failure to provide such information will be considered by HHS in any determination regarding the entity’s liability to drug manufacturers and in the entity’s attempt to re-enroll in the 340B Program. The Guidance makes it clear that a Covered Entity is liable to drug manufacturers for any discount received while it or any child site was ineligible. The Guidance proposes to permit a terminated Covered entity to re-enroll at the next regular enrollment period for which the entity can establish that it is in compliance with all eligibility requirements, and is in the process of offering any applicable repayment to the drug manufacturer.

Dykema will present additional updates on other aspects of the Guidance, including covered drugs, replenishment models, contract pharmacies and the GPO prohibition, and record keeping requirements and audits. Dykema attorney Kathleen A. Reed (231.348.8134),, is available to assist your organization in understanding the proposed Guidance and implementing anticipatory compliance efforts.

All 340B Covered Entities should evaluate their current practices under the proposed Guidance in preparation for any adjustments that may be required once the Guidance is finalized.

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