may not otherwise give discounts to third parties. 79 These requirements will
be discussed in detail in the section addressing contract terms. 80
There are some community health center characteristics that simplify
340B compliance. Because community health centers are outpatient only,
they dispense only outpatient drugs, unlike hospitals that must distinguish
inpatient from outpatient prescriptions for 340B purposes. Because of their
inpatient services, hospitals are at greater risk of 340B drugs being
unlawfully diverted to non-eligible patients. Additionally, because
community health centers are required by law to serve uninsured patients, 81
their participation in the 340B Program is less controversial than hospitals,
some of which have a poor track-record of charity care.
III. 340B PROGRAM PROHIBITIONS AND ENFORCEMENT
A. Prohibition on Duplicate Discounts
Pharmaceutical manufacturers are protected from giving duplicate
discounts under 340B and within Medicaid. Section 340B prohibits covered
entities (and contract pharmacies, as applicable) from dispensing drugs
acquired at the 340B discounts to Medicaid fee-for-service patients when the
drug is also subject to a Medicaid rebate. 82 Unfortunately, communication
between covered entities and state Medicaid offices regarding duplicate
discounts has been unreliable over the years.
Section 340B tasked the Secretary of HHS with creating a mechanism for
preventing duplicate discounts, from which the Medicaid Exclusion File was
born. 83 The Medicaid Exclusion File serves as a spreadsheet that lists all
covered entities, along with their provider numbers, that use 340B drugs with
Medicaid patients. 84 The 2011 OIG report regarding the 340B Program,
however, uncovered gross miscommunication between HRSA and state
Medicaid offices. 85 In response to the OIG report, HRSA has increased its
outreach efforts to states concerning the agency’s online databases.
Additionally, covered entities now must recertify annually, which increases
79. See infra Part VI(iii).
81. 42 U.S. C. § 254b(a)( 1) (2010).
82. 42 U.S. C. § 256b(a)( 5)( A)( i) (2010).
83. See id. (noting the establishment of the 340B Medicaid Exclusion File as a way to
prevent duplicative discounts).
85. See OIG 2011 REPORT, supra note 21, at 14-15 (recognizing that some states lack
reporting methods for identifying 340B claims); see also von Oehsen Article, supra note 20,
at 90–91 (noting the OIG findings that many states did not use the Medicaid Exclusion File
and did not have an alternative method for identifying 340B claims, leading to duplicative