340B Auditing and Management in Contract Pharmacies

Pharmacy TimesMarch 2024
Volume 90
Issue 3

Contract pharmacies should work to stay in a perpetual state of audit readiness

The 340B Drug Pricing Program is a government-sponsored initiative that offers discounts on outpatient medications to eligible organizations with the intent of further stretching limited federal resources to benefit those in need.1 This program has been part of the hospital pharmaceutical supply chain for more than 30 years. With the Patient Protection and Affordable Care Act in 2010, the 340B program was further expanded to include new categories of hospitals.2

Although 340B is a program focused on health systems, recent research findings have shown that approximately 40% of retail pharmacies in the United States have at least 1 contract with a 340B-eligible health care provider, highlighting the role community pharmacies can play.3 The number of retail pharmacies with contracts has seen significant growth in recent years, from 789 in 2009 to 25,755 in 2022. The number of contracts per pharmacy also increased during the same period. In 2009, 81% of contract pharmacies had 1 contract, whereas in 2022, only 40% had 1 contract, 23% had 2 contracts, 27% had 3 to 5, 7% had 6 to 9, and 3% had 10 or more contracts.4

About the Author

Joanna Lewis, PharmD, MBA, is the 340B compliance coordinator at Baptist Health in Jacksonville, Florida.

Pharmaceutical manufacturers participate in the 340B program through section 340B of the Public Health Service Act as a condition of participating in Medicaid. Manufacturers offer reduced medication prices to health care organizations that care for indigent and low-income patients. According to the Health Resources and Services Administration (HRSA), the governing body responsible for administering the 340B program, hospitals can achieve an average savings of 25% to 50% on pharmaceuticals through the 340B program.1

Facilities eligible to purchase 340B drugs through the 340B Drug Pricing Program, called covered entities (CEs), include a variety of organizations such as public and nonprofit disproportionate share hospitals, critical access hospitals, sole community hospitals, and rural referral centers. Savings from the 340B program are used to stretch federal resources and provide, for example, services for mental health clinics, free care for uninsured patients, and medication assistance, as well as fund community health programs.5

As part of this program, all participating CEs are responsible for ongoing compliance with program requirements.6,7 There are many regulations and operational boundaries that can present challenges for organizations to implement. To overcome these obstacles, it is important for CEs to stay in a continual state of audit readiness.


To be in a continual state of audit readiness, CEs need to develop a robust audit strategy. This strategy not only benefits the entity by providing continuous insight into program performance, but ultimately allows resources to be stretched by supporting ongoing improvement and perpetual compliance. HRSA is responsible for ensuring the integrity of the program for eligible entities and manufacturers, and they do this through guidance, various means of support, and audits.7 With the increased growth of the program and scrutiny in recent years, HRSA has increased oversight of the program through random and targeted audits based on criteria that HRSA believes represent higher compliance risk scenarios.7

Another essential element of an audit strategy is to have an oversight committee that includes necessary stakeholders.8,9 Examples of key stakeholders are pharmacy personnel, finance team members, billing team members, internal compliance experts, informatics experts, and pharmacy procurement/inventory managers.

Once an audit strategy is in place, organizations need to decide the audit steps required and the frequency with which they will be performed. Important elements that should be included in an audit strategy include data and documentation review, internal auditing, independent external audits, and mock HRSA audits.7,9


Any auditing strategy should include all necessary documentation required for an HRSA audit, including policies and procedures that are aligned with the hospital’s program practices and operations. Policies should address the necessary elements of the program (eg, patient definition, eligible locations, diversion), and compliance to each point should be demonstrated in audits. Documentation also needs to include eligibility and recertification forms, ensure the HRSA database is up to date, and verify that federal grants and contracts are readily available if applicable.9 Inventory management should have crosswalks that show applicable accounts and invoices.


The purpose of internal auditing is to monitor trends, assess compliance, and help identify potential diversion, software inaccuracies, and other problem areas. Internal auditing should examine the integrity of split-billing data extracts and target diversion, duplicate discounts, the Medicaid exclusion file, and inventory management.9,10 It should also involve pulling a dispensation sample. HRSA does not provide specific requirements on how to audit or how often, but it should be customized to every organization. Many entities self-audit either monthly or quarterly.

Independent external audits are also instrumental to the integrity of the program. HRSA has set expectations via posted notices around contract pharmacies with the recommendation that they conduct independent external audits through an outside company. Mock HRSA audits are an additional step that will support the program. In the mock audits, an organization should go through the data request list and involve all necessary individuals that they would have involved during a real audit.7,9


Several changes have been made to the HRSA data request form and auditing requirements in the past few years. Included here are a few recommendations based on recent trends:

  • Policies and procedures should accurately show how an organization structures their program and operationalizes 340B statutes. Explanations on how diversion and duplicate discounts are prevented at all pharmacies (eg, health-system pharmacies, external contracted pharmacies) should be included in this. Because of the current changes in registration requirements for offsite outpatient hospital facilities, policies need to outline how they define an eligible location.5,9 Organizations also need to explain what their medication status is based on, whether that be registration, time of dispensation, or time of charge.
  • There is a new requirement for hospitals to provide an unbundled trial balance as part of their CE eligibility documentation. This refers to worksheet A and C on the Medicare cost report (MCR). Detail to the level of the cost center needs to be present so that HRSA can validate individual locations registered at offsite areas.9 Additionally, as of April 2023, an organization can utilize a change request on the 340B Office of Pharmacy Affairs Information System website to update MCR information immediately upon filing a new or amended cost report.
  • If a contract with state or local government is part of the hospital eligibility, then that contract needs to be readily available and state that it is for indigent care patients who are ineligible for Medicare or Medicaid.10,11 This contract should also include a provision with policies regarding indigent care, the name of the hospital and government agency, signatures of the hospital and government agency, and the effective dates of contract. Hospitals also need to prove nonprofit status.11,12 This is most often done by providing Internal Revenue Service form 990, but HRSA may accept a hospital charter, articles of incorporation, or documentation from the state that certifies that they are a nonprofit entity.
  • Lastly, Medicaid documentation needs to maintain a crosswalk that includes a claim with a covered outpatient drug for each pharmacy.9,11


Auditing the 340B functions is one of the most critical steps for contract pharmacies to ensure compliance with federal requirements. Developing a good audit strategy that includes necessary elements of data and documentation, self-auditing, and external audits ensure a strong 340B program. Keeping up with the latest auditing requirements is also important, and regular updates and resources can be found through the HRSA or Apexus websites.

  1. 340B Drug Pricing Program. Health Resources and Services Administration. Updated December 2023. Accessed January 10, 2024. https://www.hrsa.gov/opa
  2. Barlas S. Health care reform bill expands access to Section 340B discounted drugs for hospitals. P T.2010;35(11):632-634.
  3. New study tracks the number of pharmacies participating in 340B drug pricing program. News release. University of Minnesota. October 26, 2023. Accessed February 6, 2024. https://twin-cities.umn.edu/news-events/new-study-tracks-number-pharmacies-participating-340b-drug-pricing-program
  4. Nikpay S, McGlave CC, Bruno JP, Yang H, Watts E. Trends in 340B Drug Pricing Program contract growth among retail pharmacies from 2009 to 2022. JAMA Health Forum. 2023;4(8):e232139. doi:10.1001/jamahealthforum.2023.2139
  5. 340B eligibility. Health Resources and Services Administration. Updated June 2022. Accessed January 10, 2024. https://www.hrsa.gov/opa/eligibility-and-registration
  6. Program requirements. Health Resources and Services Administration. Updated May 2020. Accessed January 10, 2024. https://www.hrsa.gov/opa/program-requirements
  7. Program integrity. Health Resources and Services Administration. Updated July 2023. Accessed January 10, 2024. https://www.hrsa.gov/opa/program-integrity
  8. Wilson AL, ed. The 340B Program Handbook: Integrating 340B Into the Health-System Pharmacy Supply Chain. 1st ed. American Society of Health-System Pharmacists; 2018.
  9. Essential practices for HRSA audit preparedness. Apexus. October 13, 2023. Accessed January 10, 2024. https://www.apexus.com/about-us/articles-and-updates/essential-practices-for-hrsa-audit-preparedness
  10. Testoni M. What should a 340B covered entity expect during a typical HRSA audit? Pharmacy Purchasing & Products. 2014;11(9):2.
  11. Program integrity: FY23 audit results. Health Resources and Services Administration. Updated January 2024. Accessed January 10, 2024. https://www.hrsa.gov/opa/program-integrity/fy-23-audit-results
  12. Registration requirements in the 340B Drug Pricing Program. Federal Register. October 27, 2023. Accessed January 10, 2024. https://www.federalregister.gov/documents/2023/10/27/2023-23702/registration-requirements-in-the-340b-drug-pricing-program
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