340B Series (Part 2): Expansion of contract pharmacies & 340B confusion.

The second part of our 340B story-time series revolves around a small shift in 2010 that has had a major Sisqoimpact on the implementation of the 340B discount program. Originally, the covered entities under 340B were required to purchase the discounted drugs directly or with an “in-house” pharmacy. In 1996, the Health Resources and Services Administration (HRSA) issued a guidance permitting the covered entity to designate one pharmacy, either an in-house or an individual contract pharmacy, to dispense the 340B discounted drugs to eligible patients.[1] Then in 2010, after 14 years of 340B covered entities operating with one pharmacy and the rise and fall of Sisqo’s “Thong Song” (sorry, the late 90’s were pretty funny when you think about it), HRSA provided additional guidance that would allow covered entities to contract with multiple pharmacies.[2] This simple shift in policy led to an enormous expansion of contract pharmacies utilizing 340B and in just 3 years the total number of contract pharmacies grew by 1,245%.[3]

While allowing multiple contract pharmacies would allow greater access to these discounted drugs, HRSA audits found instances of diversion or duplicate discounts in 1/3 of the 32 covered entities audited as of January 8, 2014.[3] These problems have brought significant attention to the oversight of 340B, especially with the use of contract pharmacy arrangements. At first glance, it sounds like something nefarious is going on but as you dive into the complexity that is 340B (and our healthcare system in general) it is actually easy to see why there are many cases falling under the definition of “diversion” that may actually just be poor implementation of the program. The Office of Inspector General’s memo in 2014 displayed a few examples of how the determination of a patient’s eligibility may actually lead different covered entities to define patients differently.[3]

Example 1: Physicians practicing in multiple places.

Many physicians may spend some time practicing within a covered entity in addition to a privately owned practice that is not considered a covered entity by HRSA. If the prescriber initiates a prescription for this patient during a visit at the covered entity and then follows up with the patient at the private practice to initiate refills, the follow-up visit would technically not be 340B-eligible. If the 340B contract pharmacy utilizes a list of “covered physicians” to determine eligibility this could lead to diversion as defined by the program.

Example 2: Time between patient visits.

If a physician sees a patient within a covered entity and initiates a prescription with refills, what happens when the patient stops seeing the physician but continues to use the refills on the original prescription? The refills at the time the patient is no longer seen by the covered entity may be defined as ineligible, but how would the contract pharmacy or covered entity audit this? Is there an appropriate time limit to set for 340B eligibility? Should refills be included? These are all questions that make the implementation of these programs difficult.

Example 3: 2 Physicians, 1 Patient.

Next we consider a scenario in which a physician within a covered entity sees a patient and refers to a specialist outside of the covered entity. During HRSA audits, 2 covered entities said they would not consider this case 340B-eligible, but 1 covered entity would if their records indicated that the patient was referred by a prescriber within the covered entity.[3]

Example 4: Previously diagnosed conditions.

Finally, we consider a physician seeing a patient within a covered entity for a specific diagnosis. During the visit, the physician provides prescriptions for previously diagnosed conditions not covered in this visit. In this case, some covered entities would not categorize the prescriptions related to previously diagnosed conditions as 340B-eligible, but many would.

Are you confused yet? Yeah, me too.

As the number of covered entities and contract pharmacy arrangements grow, the differences in implementation or interpretation of eligibility is cause for concern. I’m not sure that all of the cases of diversion are the result of intentional abuse of the program. In fact, I would bet that a solid majority of inappropriate eligibility determinations are just a result of the ridiculously complex implementation of this program combined with a lack of quality oversight. More to come…



  1. 61 FR 43549-Notice regarding section 602 of the Veterans Health Care Act of 1992; Contract Pharmacy Services. August 23, 1996. Available at: http://www.gpo.gov/fdsys/granule/FR-1996-08-23/96-21485, accessed June 30, 2015.
  2. 75 FR 10272-Notice regarding 340B Drug Pricing Program-Contract Pharmacy Services. March 5, 2010. Available at: http://www.gpo.gov/fdsys/search/pagedetails.action?st=75+FR+10272&granuleId=2010-4755&packageId=FR-2010-03-05, accessed June 30, 2015.
  3. Office of Inspector General, Memorandum Report: Contract Pharmacy Arrangements in the 340B Program. February 4, 2014.


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Joey Mattingly, PharmD, MBA is an assistant professor at the University of Maryland School of Pharmacy located in Baltimore, Maryland. Joey has managed retail and long-term care pharmacy operations in Kentucky, Illinois and Indiana. Leading Over The Counter is a blog of Joey's views and opinions on the topics of pharmacy leadership and management and do not represent the University of Maryland, Baltimore. Joey can be followed on Twitter @joeymattingly.

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