CASP Module 23, Section 2: 340B Program Optimization and Compliance
MODULE 23: THE HSSP AS A SYSTEM-WIDE ASSET

Section 2: 340B Program Optimization and Compliance

A masterclass on the 340B drug pricing program—often the financial engine of an HSSP. We’ll explore how HSSPs leverage 340B to generate critical savings for the institution, the complexities of “child site” eligibility, and the rigorous compliance required to avoid duplicate discounts and pass audits.

SECTION 23.2

340B Program Optimization and Compliance

The High-Stakes World of the HSSP’s Financial Engine

23.2.1 The “Why”: The 340B Program as the HSSP’s Financial Engine

In the previous section, we established that a Health-System Specialty Pharmacy’s (HSSP) greatest clinical asset is its EMR integration. In this section, we will explore its greatest financial asset: The 340B Drug Pricing Program. For most HSSPs, particularly those in non-profit Disproportionate Share Hospitals (DSH), the 340B program is not just an ancillary benefit—it is the financial engine that makes the entire HSSP model possible. It is the economic fuel that pays for the embedded liaisons, the clinical pharmacists, the adherence programs, and the robust patient support services that differentiate an HSSP from a mail-order pharmacy.

Understanding the 340B program is not optional; it is a core competency for an advanced specialty pharmacist. The program is a universe of profound complexity, high financial stakes, and immense compliance risk. As an HSSP leader, you will be required to speak fluently about 340B to your C-Suite, to your providers, and to auditors.

So, what is it? The 340B Drug Pricing Program is a US federal program enacted in 1992 that requires drug manufacturers participating in the Medicaid Drug Rebate Program to provide outpatient drugs to eligible health care organizations, known as “Covered Entities” (CEs), at significantly reduced prices. The intent of the program, as stated by the Health Resources and Services Administration (HRSA), is to permit CEs “to stretch scarce federal resources as far as possible, reaching more eligible patients and providing more comprehensive services.”

This is the critical concept: 340B is not a “profit” program. It is a “savings” or “program income” program. The HSSP, acting as part of the CE, can purchase high-cost specialty drugs at the protected 340B “ceiling price” (often 25-50% below WAC) and then be reimbursed by the patient’s third-party insurance (e.g., Aetna, Cigna) at a much higher rate. This “spread” or “margin” is the program income. The law mandates that this income must be used by the covered entity to support its mission of caring for vulnerable patient populations. For an HSSP, this means reinvesting those savings back into the pharmacy’s clinical mission.

Pharmacist Analogy: The “Employee Discount” for the Health System’s Mission

Think about your time in community pharmacy. Most chains offer an “employee discount” on front-store items. You, as an employee, could buy a $20 bottle of shampoo for your cost, let’s say $8. This discount saved you $12, stretching your personal budget.

Now, imagine your pharmacy created a new rule: you could use your employee discount to buy items for a customer, but the customer still pays with a $20 gift card.

  • A customer comes in with a $20 gift card (the “Payer Reimbursement”).
  • They want that $20 bottle of shampoo.
  • At the register, you use your employee discount. The pharmacy’s cost for the shampoo is $8 (the “340B Price”).
  • The pharmacy redeems the $20 gift card from the gift card company.

The pharmacy just generated a “margin” of $12 ($20 reimbursement – $8 cost). This $12 does not go into your pocket. Instead, the pharmacy owner puts it into a dedicated fund. At the end of the month, that fund is used to pay for the pharmacy’s free blood pressure screenings, diabetes education classes, and to cover the cost of medications for uninsured patients. The “savings” you generated were directly reinvested into the pharmacy’s clinical mission.

This is the 340B program. The HSSP is using the hospital’s “employee discount” (its 340B eligibility) to generate savings from prescriptions it already dispenses to its eligible patients. Those savings are then used to fund the very “value-add” clinical services—the embedded liaisons, the 24/7 pharmacist support, the adherence monitoring—that define the HSSP and improve patient care.

23.2.2 The 340B Lexicon: A Masterclass in Core Terminology

To navigate the world of 340B, you must first speak the language. The program is built on a foundation of specific, legalistic terms. Understanding them is the first step to ensuring compliance. This is your core glossary.

Masterclass Table: The 340B Core Lexicon
Term / Acronym What It Means Why It Is Critical to the HSSP
Covered Entity (CE) An eligible health care organization that qualifies for the 340B program. This is the hospital or health system itself, not the pharmacy. Common types are DSH, CAH, RRC, SCH, and Grantees (e.g., FQHCs). The HSSP’s “license” to participate in 340B is 100% dependent on the hospital maintaining its CE status. The HSSP is a function of the CE.
HRSA / OPA HRSA (Health Resources and Services Administration) is the federal agency within the HHS that administers the program. The OPA (Office of Pharmacy Affairs) is the specific HRSA division that oversees 340B. OPA is the “policeman on the beat.” They run the program, set the rules (via guidance), and conduct the audits. Your compliance program is built to satisfy OPA.
340B OPAIS The 340B Office of Pharmacy Affairs Information System. This is the official public database where every CE, child site, and contract pharmacy is registered. This is the single source of truth. If a clinic or pharmacy is not listed in OPAIS, it is not 340B eligible, period. Your compliance program must be built around the data in this system.
Covered Outpatient Drug The 340B discount only applies to outpatient drugs. This is generally defined as any FDA-approved prescription drug or biologic used in an outpatient setting (with some “orphan drug” exceptions). This is the legal line. A 340B drug cannot be used for an inpatient. This is a primary form of diversion. The HSSP, by definition an outpatient pharmacy, lives in this space.
340B Ceiling Price The maximum, statutorily-defined price a manufacturer can charge a CE for a covered outpatient drug. It’s calculated using a formula based on the Average Manufacturer Price (AMP) and the Unit Rebate Amount (URA). This is the “buy low” price. This protected price (often 25-50% below WAC) is what creates the “margin” when the HSSP is reimbursed by a third-party payer.
GPO Exclusion The Group Purchasing Organization (GPO) Exclusion. A critical rule stating that DSH, PED, and CAN CEs are prohibited from using GPO pricing for covered outpatient drugs. This is a major compliance trap. Your HSSP must ensure it is purchasing all covered outpatient drugs on its WAC (Wholesale Acquisition Cost) account, not a GPO account.
Child Site An outpatient clinic or department of the CE that is located at a different physical address than the “parent” hospital, but is an integral part of the CE. This is a cornerstone of HSSP compliance. For a prescription to be 340B eligible, it must originate from a provider at an eligible site. This means the clinic must be registered as a child site in OPAIS.
Medicare Cost Report (MCR) The annual financial report the hospital files with CMS. It lists all of the hospital’s departments and clinics, their costs, and their square footage. This is the prerequisite for eligibility. For a “child site” to be registered in OPAIS, it must first be listed as a reimbursable cost center on the hospital’s most recent, filed MCR.

23.2.3 The “Three Commandments” of 340B Compliance

The 340B program is often called a “program on the honor system,” but it’s an honor system backed by the threat of multi-million dollar paybacks and program expulsion. To survive, you must build your entire operation around three core commandments. This is the most important part of this section.

Commandment I:
Thou Shalt Not Commit DIVERSION

You cannot sell or transfer a 340B-purchased drug to any individual who is not an eligible patient of your Covered Entity. This is the “original sin” of 340B.

Commandment II:
Thou Shalt Not Cause a DUPLICATE DISCOUNT

You cannot cause a manufacturer to give two discounts on one drug: the 340B discount to you and a Medicaid rebate to the state. This applies to Medicaid Fee-for-Service (FFS).

Commandment III:
(for DSH/PED CEs)
Thou Shalt Not Violate the GPO EXCLUSION

You cannot purchase any covered outpatient drugs (even non-340B ones) on a Group Purchasing Organization (GPO) contract. All must be on WAC or 340B accounts.

23.2.4 Masterclass Deep Dive: Preventing DIVERSION (The Patient Definition)

Diversion is the #1 audit finding and the most complex compliance challenge. To prevent it, you must have an iron-clad, auditable system to prove that every single 340B dispense went to an eligible patient. HRSA has provided a 3-part test (all three must be met):

HRSA’s 3-Part Patient Definition Test
  1. The CE has established a relationship with the individual, such that the CE maintains records of the individual’s health care.
  2. The individual receives health care services from a health care professional who is either employed by the CE or provides health care under contractual or other arrangements (e.g., credentialed, privileged) such that responsibility for the care provided remains with the CE.
  3. The individual receives a health care service or range of services from the CE which is consistent with the service or range of services for which the CE is eligible (e.g., an individual is not a patient if their only service is a lab test).

This legal language is confusing. Let’s translate it into an HSSP Compliance Playbook. To be a 340B-eligible prescription, your HSSP must be able to prove all of the following are true.

The HSSP’s “Auditable Record” Compliance Playbook

For any 340B prescription an auditor selects, you must be able to produce this evidence:

  • 1. The “Eligible Site” Test:
    • The Rule: The prescription must originate from a CE-owned clinic or location that is registered and active in OPAIS on the date the prescription is written.
    • HSSP Control: Your pharmacy software must maintain an “Eligible Location File.” This is a list of all OPAIS-registered child site addresses. Your system must check the clinic address on the prescription against this file. If the clinic address is not on the file (e.g., it’s a new clinic not yet on the MCR/OPAIS), the prescription must be flagged as non-340B eligible and filled from WAC inventory.
  • 2. The “Eligible Provider” Test:
    • The Rule: The prescriber must be employed by the CE or be independently credentialed and privileged at the CE. A private doctor who just has “referring” privileges does not count.
    • HSSP Control: Your pharmacy software must maintain an “Eligible Provider File.” This file is sourced from the hospital’s credentialing office. Your system must check the prescriber (by NPI) against this file. If the prescriber is not on the file, the prescription is non-340B eligible.
  • 3. The “EMR Encounter” Test:
    • The Rule: The prescription must be a result of an eligible provider encounter that is documented in the CE’s medical record (this proves the 3-part definition).
    • HSSP Control: This is where EMR integration (Section 23.1) becomes a compliance mandate. For every 340B dispense, you must be able to link it back to a corresponding EMR encounter note (e.g., a clinic visit note, a documented phone call, an EMR message) from that eligible provider. This note is your ultimate proof that the 3-part test was met. Without EMR access, this is nearly impossible.
The “Referral” Trap: The Most Common Diversion Pitfall

Scenario: Dr. Smith (an eligible, employed CE oncologist) sees a patient in her eligible, OPAIS-registered clinic. Dr. Smith diagnoses the patient with a new condition and writes in her note, “Refer to Dr. Jones (a private rheumatologist) for management of new-onset RA.” Dr. Jones (who is not employed by the CE and whose clinic is not OPAIS-registered) sees the patient and prescribes Humira, which is sent to your HSSP.

Is this 340B-eligible? NO.

Why? The “encounter that created the prescription” was with Dr. Jones, a non-eligible provider at a non-eligible site. Even though the “specialty care” is being managed by the CE’s oncologist, the prescription itself did not originate from a CE provider. This is diversion. Your system must be smart enough to flag Dr. Jones as a non-eligible prescriber and fill this from WAC.

23.2.5 Masterclass Deep Dive: Preventing Duplicate Discounts (The Medicaid Problem)

This is the second great sin of 340B. The government cannot pay two discounts for the same drug. A manufacturer cannot be forced to give a 340B discount upfront and pay a Medicaid rebate on the back end. This prohibition applies specifically to Medicaid Fee-for-Service (FFS).

To prevent this, the Covered Entity must make a critical decision for each state it dispenses to. It must tell HRSA whether, for Medicaid FFS patients, it will “carve-in” or “carve-out”.

Masterclass Table: “Carve-In” vs. “Carve-Out” Strategy
Strategy What It Means How the HSSP Must Comply Pros & Cons
Medicaid FFS “Carve-Out” The CE elects to NOT use 340B pricing for any patient covered by Medicaid FFS. This is an inventory management solution. The HSSP’s system must:
  1. Identify all patients with Medicaid FFS at the point of sale.
  2. Flag these prescriptions as non-340B eligible.
  3. Fill the prescription from a non-340B (WAC) inventory.
  4. Ensure the split-billing software logs this as a WAC dispense.
 Pro: Simplest, cleanest, and lowest compliance risk. No chance of a duplicate discount.
Con: You lose all 340B savings on this population. (Though Medicaid reimbursement is often so low there is little margin to be made anyway).
Medicaid FFS “Carve-In” The CE elects to USE 340B pricing for patients covered by Medicaid FFS. This is a billing management solution. The HSSP’s system must:
  1. Identify all Medicaid FFS claims.
  2. Bill these claims to the state with a submission clarification code (e.g., “1U” or “08”).
  3. This code tells the state: “This was a 340B drug. Do NOT request a manufacturer rebate.”
 Pro: Allows the HSSP to generate 340B savings on the Medicaid population (if reimbursement is higher than 340B cost).
Con: Immense compliance risk. If your billing system fails to apply the modifier, you are creating duplicate discounts and will face paybacks.
Clinical Pearl: What about Medicaid Managed Care (MCOs)?

This is the billion-dollar gray area. The statutory duplicate discount prohibition only applies to Medicaid FFS. It does not (as of current guidance) apply to Medicaid MCO plans (e.g., “UnitedHealthcare Community Plan,” “Amerigroup”).

Therefore, the industry standard practice is to:

  1. Carve-OUT Medicaid FFS (or “carve-in” with a modifier).
  2. Carve-IN Medicaid MCOs.

This allows the HSSP to use 340B pricing for MCO patients and generate savings without violating the duplicate discount rule, as MCOs do not (typically) seek traditional Medicaid rebates. However, this is a changing landscape, and some states are trying to change these rules. This requires constant monitoring.

23.2.6 The Operational Core: “Split-Billing” Inventory Management

We’ve established that an HSSP must fill 340B-eligible Rxs from a 340B account and non-eligible Rxs (e.g., from non-eligible “referral” providers, or for Medicaid “carve-out” patients) from a non-340B account (WAC/GPO). How is this operationally possible without having two giant, separate pharmacies?

The answer is “virtual inventory” managed by a “split-billing” software. This software is the brain of your 340B compliance and the engine of your inventory management. No HSSP can exist without it.

It’s critical to understand: you do NOT have two physical shelves. You have ONE physical inventory of drugs. The segregation happens electronically after the fact.

How Split-Billing Works: A Tutorial

Step 1: The Dispense (The Physical Act)

The HSSP has 10 boxes of Humira on its physical shelf. These were all purchased on a non-340B (WAC) account. A pharmacist dispenses 1 box to Mrs. Smith, an eligible patient. The physical inventory is now 9 boxes.

Step 2: The Adjudication (The Virtual Brain)

A file of that dispense is sent to the split-billing software (e.g., Verity, MacroHelix, Trellis). The software runs its compliance logic:
1. Is the patient eligible? (Checks patient file) – YES
2. Is the prescriber eligible? (Checks provider file) – YES
3. Is the site eligible? (Checks site file) – YES
4. Is it a Medicaid FFS carve-out? (Checks payer file) – NO
Result: This dispense is 340B-ELIGIBLE.

Step 3: The “Virtual Accumulator” (The Electronic Tally)

The software updates its “virtual buckets.”
Virtual 340B Bucket for Humira: +1
Virtual WAC Bucket for Humira: 0
The software now knows that the pharmacy “owes itself” one box of 340B-priced Humira.

Step 4: The Replenishment (The “True-Up”)

At the end of the day, the pharmacy needs to re-order 1 box of Humira to get its physical inventory back to 10. The split-billing software generates the purchase order (PO) for the wholesaler.
PO Line 1: Order 1 box of Humira.
Account to use: 340B Account.
Price: 340B Ceiling Price.
When this PO is sent, the “Virtual 340B Bucket” is reset to 0.

This “dispense-then-replenish” model is the only way an HSSP can manage a single inventory while maintaining perfect 1:1 compliance. It ensures you never purchase a 340B drug that you haven’t already dispensed to an eligible patient, making it a cornerstone of audit readiness.

23.2.7 The HRSA Audit: Preparing for the Inevitable

Every HSSP pharmacist and leader must operate as if an audit is scheduled for next week. A HRSA audit is not a friendly review; it is a high-stakes, “prove-it-to-us” legal examination. Failure can mean repaying manufacturers every dollar of 340B savings on any prescription deemed non-compliant. An HSSP’s survival depends on passing these audits.

When the auditors arrive, they will hand you a “pull list”—a random sample of 30-100 specialty drug dispenses. For every single one, you must be prepared to produce a “compliance packet” that proves you followed the three commandments.

Masterclass Tutorial: The Perfect 340B Audit Packet

For a single dispense of “Skyrizi, NDC 12345-678-90, dispensed 6/1/2025,” your packet must contain:

The Auditable Records “Compliance Packet”
  • 1. Proof of “Eligible Patient”:
    • The EMR Encounter Note: A copy of the provider’s EMR note (e.g., clinic visit, phone note) from on or around the date of the prescription, proving the patient received care from a CE provider and this prescription was a result of that care. This is your #1 piece of evidence.
  • 2. Proof of “Eligible Site”:
    • OPAIS Printout: A screenshot from the 340B OPAIS database showing the clinic address listed on the prescription was registered and active on 6/1/2025.
    • MCR Printout: A copy of the line from the hospital’s Medicare Cost Report showing that this clinic is an integral part of the hospital.
  • 3. Proof of “Eligible Provider”:
    • Credentialing File Screenshot: Proof from the hospital’s credentialing system that the prescriber was employed or credentialed on 6/1/2025.
  • 4. Proof of “No Duplicate Discount”:
    • Payer Adjudication Record: The paid claim, proving the payer was Commercial (e.g., Aetna) and not Medicaid FFS.
    • (If it was Medicaid FFS): The paid claim showing the “1U” modifier was correctly applied, proving you did alert the state.
  • 5. Proof of “No GPO Violation”:
    • Split-Billing Record: The report from your split-billing software showing this dispense was correctly flagged as “340B” and was replenished on a 340B-account purchase order.

Your HSSP’s compliance program is, quite simply, your ability to produce this entire packet for every single dispense, every single time. This is why robust, integrated data systems are not a luxury; they are a requirement for survival.

23.2.8 HSSP Optimization: From Compliance to Strategy

Once you have built an iron-clad compliance program, your C-Suite will ask the next question: “How do we optimize this?” 340B optimization is not about bending the rules; it is about ensuring that 100% of eligible prescriptions are captured by the HSSP so that the program income can be maximized for the health system’s mission. Every 340B-eligible prescription that “leaks” to an external specialty pharmacy is a 100% loss of savings that could have funded a clinical pharmacist or a patient’s free care.

Masterclass Table: HSSP 340B Optimization Strategies
Strategy Tactical Execution Why It Works
1. Maximize Patient Capture (“Stop the Leakage”) This is 100% about Service.
  • Implement the Embedded Liaison Model (from 23.1) for “warm handoffs.”
  • Provide “white glove” service to clinics; be the “path of least resistance.”
  • Provide “white glove” service to patients; be the most helpful, reliable pharmacy.
 Providers and patients will choose to send Rxs to the HSSP because it is the easiest, fastest, and most reliable option. This is the #1 optimization strategy.
2. Proactive Child Site Management The HSSP 340B team must have a seat at the table with hospital finance and strategy.
  • Review all new clinic openings before* they happen.
  • Ensure they are correctly listed on the Medicare Cost Report before it is filed.
  • Ensure they are registered in OPAIS at the earliest possible quarterly window.
 This prevents a “compliance gap” where a new, high-volume specialty clinic opens but its prescriptions are non-340B eligible for 6-12 months while the paperwork catches up.
3. Optimize Payer Contracting The HSSP contracting team must fight for fair reimbursement.
  • Challenge PBMs that try to “discriminate” by reimbursing 340B claims at your (low) acquisition cost.
  • Use your outcomes data (from 23.1.7) to prove your value and negotiate rates based on AWP or WAC, which allows the program to function.
 A $3,900 margin from a Commercial plan is worth infinitely more than a $0 margin from a “discriminatory” plan. A good contract is a 340B optimization strategy.
4. Continuous Internal Auditing You must audit yourself before HRSA does.
  • Perform your own “mock audit” every single month.
  • Pull a random sample of dispenses and try to build the “Perfect Audit Packet” for each one.
  • Where you find gaps, fix the process immediately.
 This ensures your compliance program is always audit-ready and prevents small errors from becoming systemic, multi-million dollar problems.

23.2.9 Section Summary & Key Takeaways

The 340B Drug Pricing Program is the financial bedrock of the modern HSSP. It provides the essential “program income” that allows the health system to reinvest in the high-touch, integrated clinical services that define specialty care. As an advanced pharmacist, you are not just a dispenser; you are a steward of this program.

  • It’s a Savings Program, Not a Profit Program: The “margin” generated is not profit; it is program income that must be used to further the CE’s mission of caring for vulnerable populations.
  • Compliance is Non-Transparent: The program’s survival rests on adhering to the Three Commandments: No Diversion, No Duplicate Discounts, and No GPO Violations.
  • The “Patient Definition” is Your Bible: You must have an auditable record proving every 340B dispense met HRSA’s 3-part test. This relies on eligible providers, eligible sites, and a documented EMR encounter.
  • EMR Integration is a Compliance Tool: Your EMR access is your primary tool for proving the patient definition and ensuring compliance.
  • Split-Billing is Your Operational Tool: “Virtual inventory” is the only way to manage a compliant and efficient pharmacy, allowing you to segregate 340B and non-340B dispenses after the fact.
  • Optimization = Capture + Compliance: You optimize the program not by bending rules, but by maximizing the capture of eligible prescriptions through superior service, and by ensuring your compliance program (child sites, payer contracts) is flawless.