Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

PART B PAYMENTS FOR 

340B-PURCHASED 

DRUGS 

Suzanne Murrin 

Deputy Inspector General for 

Evaluation and Inspections 

November 2015 

OEI-12-14-00030 
EXECUTIVE SUMMARY: PART B PAYMENTS FOR 340B-PURCHASED 

DRUGS 

OEI-12-14-00030 

WHY WE DID THIS STUDY 

Medicare Part B pays a set amount to health care providers who furnish drugs to its 

beneficiaries. Certain eligible health care providers—generally, those that serve a 

disproportionate share of needy patients—are allowed to purchase drugs using the 340B 

Drug Discount Program, thereby receiving sizable statutory discounts. Past Office of 

Inspector General (OIG) work found that Medicare payments to providers for 

340B-purchased drugs substantially exceeded the providers’ costs. Under the design of 

the 340B Program and Part B payment rules, the difference between what Medicare pays 

and what it costs to acquire the drugs is fully retained by the participating covered 

entities, allowing them to stretch scarce Federal dollars in service to their communities. 

However, some policymakers have questioned whether a portion of the savings mandated 

through the 340B Program should be passed on to Medicare and its beneficiaries. 

HOW WE DID THIS STUDY 

We determined how much Part B spent on 340B-purchased drugs in 2013 by identifying 

paid Medicare claims from covered entities. We compared 2013 Part B payment 

amounts to 340B ceiling prices at the individual drug level and the aggregate level. We 

also analyzed the financial impact on covered entities, the Medicare program, and 

Medicare beneficiaries of three different shared-savings arrangements that would enable 

Medicare and its beneficiaries to share in the cost savings resulting from 340B discounts. 

WHAT WE FOUND 

Medicare Part B and its beneficiaries paid $3.5 billion for 340B-purchased drugs in 2013. 

In the aggregate, Part B payment amounts were 58 percent more than the statutorily 

based 340B ceiling prices that year, which allowed covered entities to retain 

approximately $1.3 billion. The 340B statute does not restrict how covered entities may 

use these funds. The three shared-savings arrangements described in this report would 

have resulted in Medicare Part B savings of $162 million to $1.1 billion in 2013 while 

still providing covered entities with incentives to purchase those drugs through the 

340B Program. 

WHAT WE CONCLUDE 

OIG has produced an extensive body of work examining the 340B Program from various 

angles. As stakeholders debate the nature of 340B discounts and whether statutory 

changes should be made to enable Medicare and/or Medicaid to share in these savings, 

this report presents an independent analysis to inform the ongoing discussion and to 

support congressional and Administration decisionmakers’ efforts in striking a balance 

among the needs of these vital programs. 
TABLE OF CONTENTS 

Objectives ....................................................................................................1 

Rationale ......................................................................................................1 

Background .................................................................................................2 

Methodology................................................................................................5 

Findings........................................................................................................8 

Medicare Part B and its beneficiaries spent $3.5 billion for 

340B-purchased drugs in 2013 ........................................................8 

In the aggregate, Medicare Part B payment amounts exceeded 

340B ceiling prices by 58 percent in 2013.......................................8 

Alternative payment methodologies could redistribute the financial 

benefits of the 340B program among covered entities, Medicare, 

and Medicare beneficiaries ............................................................10 

Conclusion .................................................................................................13 

Appendix....................................................................................................15 

A: Calculation of AMP, URA, and 340B Ceiling Prices ..............15 

B: Medicare Part B Payments for Prescription Drugs ..................18 

C: Detailed Methodology..............................................................20 

Acknowledgments......................................................................................31
 
 

OBJECTIVES 

1.	 To estimate Medicare Part B expenditures for outpatient drugs 

purchased by covered entities in 2013. 

2.	 To estimate the amount by which Medicare Part B payment amounts 

exceeded 340B ceiling prices in 2013. 

3.	 To estimate the amount by which Medicare spending could have been 

reduced in 2013 if Part B had been able to share in the savings 

attributable to 340B discounts. 

RATIONALE 

The 340B Drug Discount program enables eligible health care providers— 

generally, those that serve a disproportionate share of needy patients— 

to purchase prescription drugs at statutorily discounted prices. The 

program does not address what eligible providers may charge, and many 

payers (including Medicare and, in some cases, Medicaid) reimburse at 

amounts that are much higher than the acquisition costs of the drugs.1 

Congress intended for the savings from these discounted prices to enable 

covered entities “to stretch scarce Federal resources as far as possible, 

reaching more eligible patients and providing more comprehensive 

services.” 2 Current law or program guidance, however, does not specify 

exactly how covered entities are to use the savings. 

The increase in the number and types of participating entities since the 

inception of the 340B Program in 1992 has led some stakeholders to 

question whether the program has exceeded its original congressional 

intent, and has led others to suggest that affected Federal insurance 

programs (i.e., Medicare and Medicaid) and their beneficiaries should 

share in the benefits of the discounted prices. In contrast, other 

stakeholders maintain that the program is in line with congressional intent, 

as it enables covered entities to use the savings achieved through 340B 

discounts to benefit vulnerable patient populations in ways that savings to 

Medicare or Medicaid would not. 

Proposals for restructuring the 340B Program have been a topic of 

significant debate. Various issues related to 340B have been studied by 

the Medicare Payment Advisory Commission, the Government 

Accountability Office (GAO), and the Office of Inspector General (OIG). 

This study builds on OIG’s existing body of work by analyzing the 

____________________________________________________________ 

1

 Drugs purchased by 340B covered entities are hereinafter referred to as 340B-purchased 

drugs. 

2

 H.R. Rep. No. 102-384(II), at 12 (1992)(Conf. Rep.). 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 1 
 

 

 

financial intersection of the 340B program with Medicare Part B, 

including (1) costs to Part B for 340B-purchased drugs, (2) the amount by 

which Part B payment amounts exceed 340B prices, and (3) the shared 

savings that 340B covered entities, Part B, and Medicare beneficiaries 

would receive under three payment scenarios. As stakeholders debate the 

nature of 340B discounts and whether statutory changes should be made to 

enable Medicare and/or Medicaid to share in these savings, this report 

presents an independent analysis to inform the ongoing discussion and to 

support congressional and Administration decisionmakers’ efforts in 

striking a balance among the needs of these vital programs. 

BACKGROUND 

 The 340B Drug Discount Program 

The Veterans Health Care Act of 1992 established the 340B Program in 

section 340B of the Public Health Service (PHS) Act. To have their drugs 

covered by Medicaid, manufacturers must agree to sell covered outpatient 

drugs at or below statutorily defined discount prices (340B ceiling prices) 

to covered entities.3

 Covered entities include disproportionate share 

hospitals (DSHs)4, family planning clinics, federally qualified health 

centers, and hemophilia treatment centers, among others.5 In 2013, 

11,250 entities were enrolled in the 340B Program.6 

Overall financial margins for 340B DSHs tend to be lower than those for 

other hospitals, which may be attributable in part to the tendency for such 

hospitals to provide more uncompensated and charity care.7 HRSA 

estimates that covered entities saved $3.8 billion in fiscal year (FY) 2013 

____________________________________________________________ 

3 Pursuant to 42 U.S.C. § 256b(a)(1). 

4

 A disproportionate share hospital is a hospital with a disproportionately large share of
 

low-income patients. Centers for Medicare & Medicaid Services (CMS), Medicare
 

Disproportionate Share Hospital, ICN 006741, August 2014. 5

 42 U.S.C. § 256b(a)(4). Section 7101 of the Patient Protection and Affordable Care Act
 

(ACA) added five new eligible entity types: certain children’s hospitals, certain
 

freestanding cancer hospitals, critical access hospitals (CAHs), rural referral centers, and 

sole community hospitals. 

6

 HRSA, Covered Entity Database. Accessed at https://opanet.hrsa.gov/opa/ 

CESearch.aspx on April 3, 2014. Covered entities may have multiple sites for health care 

delivery. When taking into account every location, 25,039 covered entity sites were 

enrolled in the 340B Program in 2013.

7

 GAO, Action Needed to Reduce Financial Incentives to Prescribe 340B Drugs at 

Participating Hospitals, June 2015, p. 11.
 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 2 
 

 

 

 

 

because of the discounts provided under the 340B Program.8 The 340B 

statute does not restrict how covered entities use these funds. 

Calculation of 340B Ceiling Prices 

HRSA calculates 340B ceiling prices each quarter. The 340B ceiling price 

formula is based on pricing data submitted by drug manufacturers for each 

of their national drug codes (NDCs). The 340B ceiling price is equal to 

the average manufacturer price (AMP) minus the Medicaid unit rebate 

amount (URA).9 See Appendix A for a detailed explanation of how AMPs, 

URAs, and 340B ceiling prices are calculated. 

Covered entities that participate in the Prime Vendor Program often pay 

manufacturers less than 340B ceiling prices for drugs.10 The Prime Vendor 

Program is responsible for negotiating drug prices below the 340B ceiling 

price and contracting for the distribution of 340B-purchased drugs to 

covered entities. In 2013, the Prime Vendor Program had more than 

7,000 drugs under contract, with an average discount of 10 percent below 

the 340B ceiling price.11 

Medicare Part B Payments for Prescription Drugs 

Medicare covers a limited number of outpatient drugs under its Part B 

benefit, including injectable drugs used in the treatment of cancer, certain 

vaccines, and inhalation drugs used with durable medical equipment 

(DME).12 Medicare beneficiaries can receive Part B drugs through 

hospital outpatient departments, physicians’ offices, and DME suppliers. 

In 2013, Medicare paid for most Part B drugs at 106 percent of the 

____________________________________________________________ 

8

 U.S. Department of Health and Human Services, HRSA FY2015 Budget Justification, 

p. 342. 9 42 U.S.C. § 256b(a)(1-2). Occasionally, a drug’s URA is equal to its AMP, resulting in 

a 340B ceiling price of $0. In these instances, HRSA has advised manufacturers to 

charge covered entities $0.01 per unit. See HRSA, Clarification of Penny Pricing Policy, 

November 21, 2011. 

10 Participation in the Prime Vendor Program is voluntary and free. 11 U.S. Department of Health and Human Services, HRSA FY2015 Budget Justification.
 12 42 CFR § 414.900(b) and Medicare Benefit Policy Manual, ch. 15 § 50. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 3 
 

 

 

 

 

 

volume-weighted average sales prices (ASPs).13, 14 Medicare beneficiaries 

are responsible for 20 percent of Part B payments in coinsurance. See 

Appendix B for a detailed description of Part B payment methodologies 

for drugs in various settings. 

Part B pays for most outpatient drugs on the basis of ASPs, regardless of 

the amount that the provider paid to purchase the drug from the 

manufacturer (i.e., regardless of whether the drug was purchased at the 

340B discount price).15 As a result, Part B providers can retain the 

difference between the ASP-based payment amount and the drug’s 

acquisition cost. Because acquisition costs for 340B-purchased drugs are 

usually substantially less than acquisition costs for drugs purchased 

through other channels (i.e., for non-340B drugs), providers are able to 

achieve a much larger “spread”—i.e., payment differential—on 

340B-purchased drugs than for non-340B drugs. Medicare Part B does 

not share in any of the 340B discounts, and beneficiary coinsurance 

amounts are not reduced to reflect the discounted 340B prices. Instead, 

covered entities retain the entire difference between Part B payment 

amounts and the 340B prices. 

In 2013, Medicare and its beneficiaries spent a total of $22.2 billion for 

Part B drugs—$7.7 billion in the hospital outpatient setting, $12.8 billion 

in the physician-office setting, and $1.7 billion in the DME setting. 

____________________________________________________________ 

13 77 Fed. Reg. 68210, 68216 (Nov. 15, 2012) and section 1847A of the Act. Part B 

claims dated on or after April 1, 2013, incur a 2-percent reduction in payment in 

accordance with the Budget Control Act of 2011 and the American Taxpayer Relief Act 

of 2012 (i.e., sequestration). This mandatory payment reduction is applied after the 

beneficiary’s coinsurance has been determined, resulting in a payment rate for most 

Part B drugs of 104.3 percent of the volume-weighted ASP. See http://www.cms.gov/ 

outreach-and-education/outreach/ffsprovpartprog/downloads/2013-03-08-standalone.pdf. 14 CAHs; certain hospitals in Maryland; hospitals located outside one of the 50 States, the 

District of Columbia, and Puerto Rico; and hospitals of the Indian Health Service are not 

paid on the basis of ASPs. They are excluded from the hospital outpatient prospective 

payment system (OPPS) and are paid at cost. 42 CFR § 419.20(b). Furthermore, several 

Part B drugs—including certain vaccines, blood products, and drugs infused through 

DME (which we refer to as DME infusion drugs)—are paid for on the basis of average 

wholesale prices (AWPs) and not on the basis of ASPs. Sections 1847A(a)(1) and 

1842(o)(1) of the Act. See also Medicare Claims Processing Manual, ch. 17 § 20.1.3. 15 As previously mentioned, Medicare beneficiaries can receive Part B drugs through 

hospital outpatient departments, physicians’ offices, and DME suppliers. Most 

340B-purchased drugs are provided in hospitals. However, drugs provided by physicians 

and DME suppliers associated with these hospital covered entities may sometimes be 

purchased at 340B prices. Beneficiaries can also receive Part B drugs through 

nonhospital covered entities, such as comprehensive hemophilia treatment centers and 

grantees that receive funding through the Ryan White HIV/AIDS Program. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 4 
 

 

 

Medicaid Shared-Savings Payment Methodologies 

All State Medicaid agencies offer outpatient prescription drug coverage 

and reimburse providers for covered outpatient drugs dispensed to 

Medicaid patients. For Federal financial participation to be available for 

covered outpatient drugs provided under Medicaid, manufacturers must 

enter rebate agreements with the Secretary of Health and Human Services 

and pay quarterly rebates for these drugs to State Medicaid agencies.16 

Covered entities must choose whether to dispense 340B-purchased drugs 

to Medicaid patients. Covered entities that choose to dispense 

340B-purchased drugs to Medicaid patients are said to “carve in” (or 

include) those patients and are described as “carve-in covered entities,” 

whereas covered entities that choose not to dispense 340B-purchased 

drugs to Medicaid patients are said to “carve out” those patients and are 

described as “carve-out covered entities.”17 If a covered entity chooses the 

“carve in” approach, State Medicaid agencies would not have access to 

rebates for 340B-purchased drugs provided to Medicaid patients because 

duplicate discounts are prohibited by law.18 

The rates at which States reimburse 340B-purchased drug claims 

determine whether the full 340B discount is retained by the covered entity, 

passed through to Medicaid, or shared among both parties. OIG has found 

that approximately half of States have written policies that direct covered 

entities to bill Medicaid at cost for 340B-purchased drugs.19 In these 

cases, the State Medicaid agencies receive the full 340B discount and the 

covered entities do not benefit from the price spreads. However, some of 

these States provide a higher per-prescription dispensing fee for 

340B-purchased drugs as an incentive for covered entities to dispense 

340B-purchased drugs to Medicaid patients. 

METHODOLOGY 

Data Analysis 

Estimating Part B Expenditures for 340B-Purchased Drugs. We identified 

472 drug Healthcare Common Procedure Coding System (HCPCS) codes 

____________________________________________________________ 

16 Sections 1927(a)(1) and (b)(1) of the Act. 

17 See, e.g., 340B & Medicaid. Accessed at https://docs.340bpvp.com/documents/public/ 

resourcecenter/340B_Medicaid.pdf on August 21, 2015. 18 42 U.S.C. § 256b(a)(5)(A). A duplicate discount situation would arise if a State 

Medicaid agency sought Medicaid rebates for drugs sold at 340B discounted prices.
 

Most State Medicaid agencies use HRSA’s Medicaid Exclusion File—which lists
 

carve-in covered entities—to identify and exclude from rebate invoices the claims for 

340B-purchased drugs submitted by these covered entities. 

19 OIG, State Medicaid Policies and Oversight Activities Related to 340B-Purchased 

Drugs, OEI-05-09-00321, June 2011. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 5 
(1) that were billed in the hospital outpatient, physician-office, and/or 

DME settings in 2013 and (2) for which we could determine 340B ceiling 

prices.20 These 472 HCPCS codes accounted for 86 percent ($19 billion) 

of Part B drug expenditures in 2013. We obtained Part B claims 

associated with covered entities for the 472 HCPCS codes in 2013.21 We 

then removed claims submitted by carve-out covered entities for 

dual-eligible beneficiaries (beneficiaries enrolled in both Medicare and 

Medicaid) because by electing to carve out, the entities should not have 

used 340B-purchased drugs for these patients. We determined how much 

Medicare paid for 340B-purchased drugs by summing payments listed on 

the remaining claims. 

Comparing 340B Ceiling Prices to Part B Payment Amounts. For each 

HCPCS code representing a drug purchased by a covered entity, we 

compared the quarterly 340B ceiling price to its Part B payment amount. 

We then estimated an overall aggregate difference between 340B ceiling 

prices and Medicare payment amounts among all HCPCS codes. 

We also calculated the per-beneficiary difference between 2013 drug 

acquisition costs and Medicare payment amounts among covered and 

noncovered entities for five selected high-expenditure cancer drugs. 

Calculating Potential Spending Reductions. To estimate the distribution 

of savings under various possible scenarios, we developed three 

ASP-based payment options that would allow Medicare to share in 

varying proportions of the 340B discount while still providing covered 

entities with incentives to “carve in” Medicare patients. These payment 

scenarios would pay for 340B-purchased drugs as follows: (1) by 

volume-weighted ASP (i.e., 100 percent of ASP), (2) by volume-weighted 

ASP reduced by a percentage that would enable Medicare and covered 

entities to equally share in 340B discounts, and (3) by the 340B ceiling 

price plus 6 percent of volume-weighted ASP. We estimated how much 

Medicare and beneficiary spending would have been reduced in 2013 

under each of these shared-savings payment scenarios. 

See Appendix C for a detailed description of our sources and analysis. 

Limitations 

To calculate valid estimates despite certain data limitations (for example, 

lack of a 340B identifier on Part B claims), we made assumptions and 

____________________________________________________________ 

20 Providers submit claims for Part B drugs using HCPCS codes. Each HCPCS code 

defines the drug’s name and the amount of the drug represented by one unit of the 

HCPCS code but does not specify manufacturer or package size information. 21 Because there is no identifier on Part B claims indicating that a drug was purchased 

through the 340B Program, we could not confirm that claims submitted by covered 

entities were in fact for drugs purchased at or below the 340B discount price. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 6 
analytic decisions that may have resulted in over- or underestimates of 

provider acquisition costs, Part B expenditures for 340B-purchased drugs, 

and Medicare spending reductions under shared-savings methodologies. 

This report examines only the changes in expenditures that would result 

under three different payment scenarios. It does not examine the impact 

these changes would have on covered entities’ ability to provide services 

to their communities. See Appendix C for a detailed description of these 

limitations. 

Standards 

This study was conducted in accordance with the Quality Standards for 

Inspection and Evaluation issued by the Council of the Inspectors General 

on Integrity and Efficiency. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 7 
 

 

 

 

 

 

FINDINGS 

Medicare Part B and its beneficiaries spent $3.5 billion 

for 340B-purchased drugs in 2013 

Medicare spent $3.5 billion on discounted drugs purchased by covered 

entities in 2013, representing nearly one-fifth of the $19 billion that Part B 

spent that year on the HCPCS codes included in our review.22, 23 As 

Table 1 shows, 340B expenditures were concentrated among hospital 

outpatient settings rather than associated physicians’ offices and DME 

suppliers. In total, payments for 340B-purchased drugs accounted for 

almost half ($3.2 billion) of Part B hospital outpatient drug expenditures. 

Table 1: 340B and Non-340B Part B Drug Expenditures by Setting 

Setting 340B 

Expenditures 

Non-340B 

Expenditures Total 

340B 

Expenditures’ 

Share of Total 

Hospital 

Outpatient $3,160,272,265 $3,414,983,101 $6,575,255,366 48% 

DME $54,969,170 $1,586,415,434 $1,641,384,603 3% 

Physician Office $264,576,235 $10,561,603,279 $10,826,179,514 2% 

Total $3,479,817,670 $15,563,001,813 $19,042,819,483 18% 

Source: OIG analysis of HRSA’s covered entities database and 2013 hospital outpatient, DME, and physician-office claims 

from the National Claims History (NCH) file. 

Notes: All figures include both Medicare and beneficiary portions of expenditures for the HCPCS codes included in our review. 

Hospital outpatient figures include only spending under OPPS. 

In the aggregate, Medicare Part B payment amounts 

exceeded 340B ceiling prices by 58 percent in 2013 

The 340B ceiling prices represent the maximum amount that 

a manufacturer should charge covered entities for a drug. Assuming 

covered entities paid the 340B ceiling prices for the drugs under review, 

we estimate that in 2013, covered entities spent $2.2 billion to acquire 

Part B drugs and were reimbursed $3.5 billion for these purchases by 

Medicare. In other words, Part B paid covered entities a total of 

$1.3 billion (58 percent) more than the cost of the drugs. 

____________________________________________________________ 

22 Payments for 340B-purchased drugs (i.e., payments to covered entities) will hereinafter 

be referred to as 340B expenditures.
 23 Part B 340B and non-340B expenditure figures exclude hospitals that are paid at cost
 

rather than under OPPS (e.g., CAHs, hospitals of the Indian Health Service). The 

340B expenditures associated with these types of entities totaled $329 million.
 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 8 
 

 

Overall, 398 of the 420 HCPCS codes with 340B expenditures had 

payment amounts that exceeded 340B ceiling prices in 2013 (see 

Table 2).24, 25 Of these 398 HCPCS codes, payment amounts for 149 codes 

exceeded 340B ceiling prices by between 25 percent and 49 percent, and 

payment amounts for 95 of the 398 HCPCS codes were more than double 

the 340B ceiling prices. 

For 35 HCPCS codes, the difference between the Part B payment amount 

and the 340B ceiling price was so large that, in at least one quarter of 

2013, the beneficiary’s coinsurance alone (i.e., 20 percent) was greater 

than the amount a covered entity spent to acquire the drug.26 For example, 

covered entities spent $737 per treatment in the first quarter of 2013 to 

acquire a drug that is used to treat bladder cancer; however, beneficiaries 

owed approximately $831 per treatment—i.e., 13 percent more than the 

drug cost—through coinsurance paid to the covered entity. Meanwhile, in 

addition to receiving this coinsurance, the covered entities also received 

$3,325 per treatment in reimbursement from Medicare. 

Table 2: Median Differences between Part B Payment Amounts and 340B 

Ceiling Prices for HCPCS Codes with 340B Expenditures in 2013 

Relation of Payment Amounts 

to 340B Ceiling Prices Percentage Difference Number of HCPCS Codes 

Payment amounts less than 

340B ceiling prices Total 22 

Payment amounts greater than 

340B ceiling prices 

Less than 25% 79 

25–49% 149 

50–79% 53 

80–100% 22 

More than 100% 95 

Total 398 

Grand Total 420 

 Source: OIG analysis of 340B ceiling prices and Part B payment amounts. 

____________________________________________________________ 

24 Of the 472 HCPCS codes under review, 52 did not have 340B expenditures in 2013. 

25 Of the 22 HCPCS codes with payment amounts that were less than 340B ceiling prices, 

14 had payment amounts that were below 340B ceiling prices by 25 percent or less. 

Because we did not collect actual acquisition costs for 340B-purchased drugs, we could 

not determine whether covered entities were actually reimbursed less than their costs for 

these 22 drugs, or whether they instead paid less than the 340B ceiling price through the 

Prime Vendor Program or other non-340B distribution channels. 

26 In some instances, certain covered entities may waive all or part of the beneficiary’s 

coinsurance (Medicare Benefit Policy Manual, ch. 13 § 80.1). We did not confirm 

whether beneficiaries in fact paid the Part B coinsurance for 340B-purchased drugs. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 9 
 

Covered entities retained thousands more per beneficiary than 

noncovered entities for five high-expenditure cancer drugs in 

2013 

Because covered entities acquired most Part B drugs from manufacturers 

at lower prices than did other providers, they were able to retain a greater 

spread between Part B payment amounts and acquisition costs than 

noncovered entities. For example, providers not enrolled in the 

340B Program retained less than $1,000 per beneficiary treated with one 

of five high-expenditure cancer drugs in 2013. That same year, covered 

entities retained between $5,749 and $13,336 per beneficiary for the same 

drugs because they were able to acquire the drugs using 340B discounts 

(see Table 3). 

Table 3: Acquisition Costs and Payment Differentials Per Beneficiary for Five High-Expenditure 

Cancer Drugs in 2013 

Cancer 

Drug 

Noncovered Entities Covered Entities 

2013 Part B 

Payment Per 

Beneficiary 

2013 Acquisition 

Cost Per 

Beneficiary 

Spread Between 

Payment and 

Acquisition Cost 

2013 Part B 

Payment Per 

Beneficiary 

2013 Acquisition 

Cost per 

Beneficiary 

Spread Between 

Payment and 

Acquisition Cost 

1 $21,671 $20,895 $776 $20,517 $14,768 $5,749 

2 $22,767 $21,865 $902 $18,506 $9,268 $9,238 

3 $23,900 $23,046 $854 $22,573 $13,411 $9,162 

4 $21,662 $20,898 $764 $20,044 $8,914 $11,130 

5 $28,653 $27,694 $959 $27,207 $13,871 $13,336 

Source: OIG analysis of 2013 340B ceiling prices, Part B payment amounts, and NCH claims from the hospital outpatient, DME, and physician-office settings. 

Note: The term “noncovered entities” refers to providers not enrolled in the 340B Program. 

Alternative payment methodologies could redistribute 

the financial benefits of the 340B program among 

covered entities, Medicare, and Medicare beneficiaries 

Medicare and its beneficiaries paid covered entities $3.5 billion 

($1.3 billion more than acquisition cost) for Part B drugs in 2013. 

Currently, Medicare and its beneficiaries do not share in the savings 

resulting from the 340B Program; covered entities retain the entire 

discount. In response to ongoing policy-level discussions regarding the 

intersection of 340B and other government programs, we developed three 

shared-savings scenarios that demonstrate the financial impact on covered 

entities, Medicare, and Medicare beneficiaries if policymakers were to 

decide to implement low, medium, or high levels of Medicare participation 

in 340B cost savings. Under these three scenarios, total Part B drug 

expenditures for Medicare and its beneficiaries could have been reduced 

by $162 million to $1.1 billion while allowing covered entities to retain 

from $211 million to $1.1 billion (see Table 4). 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 10 
 

 

 

 

 

Payment scenario 1: 100 percent of ASP 

Most Part B drugs are paid for at 106 percent of ASP. A cited reason for 

the 6 percent “add-on” above ASP is to ensure that providers are 

adequately reimbursed for drug costs.27 If the current 6 percent add-on to 

ASP for 340B-purchased drugs were removed and Part B payments were 

instead set at ASP, Medicare expenditures would have been reduced by 

$162 million (5 percent) in 2013; $32 million of this total reduction would 

have been realized by beneficiaries in the form of reduced coinsurance.28 

Under this scenario, covered entities would have still retained $1.1 billion 

in the spread between acquisition costs and Part B payments. 

Payment scenario 2: Equally shared savings 

Paying for 340B-purchased drugs at ASP minus 14.4 percent would have 

allowed Medicare and covered entities to have equally shared the 

340B discount in 2013. In other words, the savings attributable to the 

340B prices would have been split evenly between covered entities and 

Medicare (and its beneficiaries). If Part B had reimbursed covered entities 

at ASP minus 14.4 percent in 2013, Medicare expenditures would have 

been reduced by $638 million (18 percent) while covered entities would 

have retained $638 million in the spread between drug acquisition costs 

and Part B payments. Of the $638 million in total reduced spending, 

$128 million would have been realized by beneficiaries in the form of 

reduced coinsurance. 

Payment scenario 3: 340B ceiling price plus 6 percent of ASP 

Under a methodology whereby 340B-purchased drugs would be paid for 

at the 340B ceiling price plus 6 percent of ASP, covered entities would 

receive approximately the same spread as they would receive on drugs not 

purchased at 340B prices (i.e., purchased outside of the 340B Program). 

The add-on above the ceiling price would be intended to ensure that 

covered entities are adequately reimbursed for drug costs and that there is 

not a disincentive for covered entities to provide 340B-purchased drugs to 

Medicare beneficiaries. Reimbursing covered entities at ceiling price plus 

6 percent of ASP would have reduced Medicare expenditures by 

$1.1 billion (31 percent) in 2013; $213 million of this total reduction 

would have been realized by beneficiaries in the form of reduced 

____________________________________________________________ 

27 U.S. Department of Health and Human Services, Medicare Part B Reimbursement of 

Prescription Drugs, June 2014. 28 In most cases, Part B expenditures for a drug divided by the number of units 

reimbursed did not exactly equal the payment amount (i.e., 106 percent of ASP) in a 

given quarter. Therefore, potential expenditures under a “100 percent of ASP” payment 

scenario would not have been reduced by exactly 6 percent. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 11 
 

 

 

 

coinsurance. Covered entities would have retained $211 million in the 

spread between acquisition costs and Part B payments. 

Table 4: Potential 2013 Part B Expenditures Under Shared-Savings Payment Scenarios 

Payment Scenario 

Expenditures for 

340B-Purchased 

Drugs 

Reduction in 

Expenditures 

(Vs. Current 

Payment 

Methodology) 

Percentage 

Reduction in 

Expenditures for 

340B-Purchased 

Drugs 

Beneficiaries’ 

Share of 

Reduction 

Amount 

Retained by 

Covered Entities 

Current Payment 

(For Most Drugs, 

106 Percent of ASP) 

$3,479,817,670 -- -- -- $1,276,799,208 

100 Percent of ASP $3,317,914,493 $161,903,177 5% $32,380,635 $1,114,896,031 

Equal Sharing (ASP 

Minus 14.4 Percent) $2,841,421,124 $638,396,546 18% $127,679,309 $638,402,662 

340B Ceiling Price 

Plus 6 Percent of 

ASP 

$2,414,247,516 $1,065,570,154 31% $213,114,031 $211,229,054 

Source: OIG analysis of 2013 340B ceiling prices, Part B payment amounts, and NCH claims from the hospital outpatient, DME, and 

physician-office settings. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 12 
CONCLUSION 

Congress created the 340B Program to assist providers serving vulnerable 

patient populations by allowing them to purchase outpatient drugs at 

discounted prices. Our findings illustrate the financial benefits that these 

discounts provide for participating entities. In 2013, covered entities 

retained $1.3 billion in Part B payments because of the spread between 

Medicare payment amounts and 340B ceiling prices. The 340B statute 

does not restrict how covered entities may use these funds. 

Proposals for restructuring the 340B Program have been a topic of 

significant debate, including the issue of whether Federal insurance 

programs and their beneficiaries should share in the benefits of the 

discounted prices. We examined a number of potential payment scenarios 

that show how Medicare and its beneficiaries, who together spent 

$3.5 billion on 340B-purchased drugs in 2013, could share in 

340B discounts—something that is not possible under the current design 

of the 340B Program and Part B payment rules. The payment scenarios 

explored in this report would have reduced Medicare expenditures for 

Part B drugs between $162 million to $1.1 billion in 2013 while still 

allowing covered entities to retain between $211 million and $1.1 billion 

in 340B discounts. It is important to note that our analysis was entirely 

financial. We did not examine the effect these changes would have on 

covered entities’ ability to serve their communities. 

OIG has produced an extensive body of work examining the 

340B Program from various angles. As stakeholders debate the nature of 

340B discounts and whether changes should be made to enable Medicare 

and/or Medicaid to share in these savings, this report presents an 

independent analysis to inform the ongoing discussion and to support 

congressional and Administration decisionmakers’ efforts in striking a 

balance among the needs of these vital programs. 

In implementing any changes, it would be essential for any payment 

methodology to provide enough financial incentives to ensure that covered 

entities continue to purchase Part B drugs through the 340B Program. 

Without such incentives, it may be more financially advantageous for 

covered entities to dispense non-340B drugs to Medicare patients, 

depriving both the entities and Medicare of the benefits of the 

340B Program. 

Furthermore, it is also necessary that any payment methodology 

specifically for 340B-purchased drugs addresses issues in identifying these 

drugs on Part B claims. Currently, there are no identifiers used on Part B 

claims that would allow Medicare to identify when a 340B-purchased drug 

was provided to a beneficiary. Because drugs purchased at 340B prices 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 13 
 

are challenging to identify on Medicare claims, CMS may risk incorrectly 

including or excluding these drugs from a shared-savings payment 

methodology. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 14 
 

 

APPENDIX A 

Calculation of AMP, URA, and 340B Ceiling Prices 

Under their Medicaid drug rebate agreements and pursuant to section 

1927(b)(3) of the Act, manufacturers must provide CMS with the AMP for 

29, 30 each of their NDCs on a monthly and quarterly basis. Effective 

October 2010, ACA revised the definition of “AMP” to be the average 

price paid to the manufacturer for the drug in the United States by 

(1) wholesalers for drugs distributed to retail community pharmacies and 

(2) retail community pharmacies that purchase drugs directly from the 

manufacturer. 

In the Medicaid drug rebate program, drugs are generally categorized as 

one of three types: single-source, innovator multiple-source, or 

noninnovator multiple-source. In general terms, a single-source drug 

would typically be a brand-name product with no available generic 

versions. An innovator multiple-source drug would typically be a 

brand-name product that has available generic versions. A noninnovator 

multiple-source drug would typically be a generic version of any innovator 

product. Manufacturers provide CMS with the drug category for each of 

their NDCs in conjunction with AMP data. 

Manufacturers of single-source and innovator multiple-source drugs must 

also provide CMS with the “best price” for each NDC.31 “Best price” is 

defined in section 1927(c)(1)(C) of the Act as the lowest price available 

from the manufacturer during the rebate period to any wholesaler, retailer, 

provider, health maintenance organization, nonprofit entity, or 

governmental entity within the United States, with certain exceptions. 

Manufacturers of noninnovator multiple-source drugs are not required to 

provide best prices for those NDCs. 

For rebate purposes, manufacturers must provide AMP and best-price data 

to CMS within 30 days of the end of each quarter.32 CMS uses this 

information to calculate a URA every quarter for each NDC included in 

the Medicaid drug rebate program. Pursuant to section 1927(c) of the Act, 

the formula used to calculate the URA depends on the drug category 

____________________________________________________________ 

29 For Federal financial participation to be available for covered outpatient drugs 

provided under Medicaid, manufacturers must enter into rebate agreements with the 

Secretary of Health and Human Services and pay quarterly rebates to State Medicaid 

agencies. Sections 1927(a)(1) and (b)(1) of the Act. 30 Section 1927(b)(3) of the Act. See also 42 CFR § 447.510. 

31 Section 1927(b)(3)(A)(i)(II) of the Act. 

32 42 CFR § 447.510(a). 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 15 
 

 

 

reported by the manufacturer. The basic URA for a noninnovator 

multiple-source drug is 13 percent of the AMP. The basic URA for a 

single-source or innovator multiple-source drug is the greater of 

23.1 percent of the AMP or the difference between the AMP and best 

price.33 In addition, for drugs approved exclusively for pediatric 

indications and certain blood-clotting factors, the basic rebate is the 

greater of 17.1 percent of AMP or the difference between the AMP and the 

best price. If the AMP for a brand-name drug has risen faster than 

inflation, the drug’s manufacturer must pay an additional rebate over and 

above the basic URA.34 

The AMP and URA used in the 340B ceiling price formula are based on 

the lowest identifiable amount of each drug, such as a tablet, capsule, or 

milliliter.35 Therefore, the 340B ceiling price applies to each unit of the 

drug that the covered entity purchases—for example, $1 per pill. To 

implement the 340B requirements in practice, the per-unit 340B ceiling 

price must be multiplied by the drug package size at which covered 

entities purchase drugs—for example, a bottle of 100 tablets. 

HRSA calculates 340B ceiling prices each quarter. However, because of 

confidentiality provisions related to pricing data, the agency does not 

share 340B ceiling prices with covered entities; effectively, the covered 

entities must rely on manufacturers to charge the appropriate amount for 

eligible drug purchases.36, 37 If a manufacturer fails to sell eligible drugs to 

covered entities at or below the 340B ceiling price, it may be required to 

____________________________________________________________ 

33 Section 1927(c) of the Act. 

34 Section 1927(c)(2) of the Act. To determine whether a brand-name drug is subject to 

the increased rebate amount, CMS compares the reported AMP for a given quarter to its 

inflation-adjusted baseline AMP. The baseline AMP for a drug is the AMP for the first 

quarter after the drug’s initial market date. To adjust the baseline AMP for inflation, 

CMS first divides the baseline AMP by the baseline consumer price index for all urban 

consumers (consumer price index), which is the consumer price index for the first month 

prior to the first quarter after the drug’s initial market date. The result of that calculation 

is then multiplied by the quarterly consumer price index, which is the consumer price 

index for the month prior to the quarter being calculated. If the reported AMP is greater 

than the inflation-adjusted baseline AMP, then the difference is added to the URA. 35 Sample Medicaid Drug Rebate Agreement, Section I, accessed at 

http://www.medicaid.gov/medicaid-chip-program-information/bytopics/benefits/prescription-drugs/downloads/samplerebateagreement.pdf on 

March 6, 2014. See 77 Fed Reg. 5318, 5328 (Feb. 2, 2012). 

36 Section 1927(b)(3)(D) of the Act. 

37 In May 2015, HRSA announced that covered entities will have access to a new 

340B pricing system that would allow them to view 340B ceiling prices. See 

http://www.hrsa.gov/opa/updates/2015/may.html. At the time of our review, this system 

had not been implemented. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 16 
 

reimburse for discounts withheld and can be terminated from both the 

340B Program and the Medicaid drug rebate program.38

 ____________________________________________________________ 

38 42 U.S.C. § 256b(d)(1)(B)(ii); Section 1927(b)(4)(B) of the Act. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 17 
 

 

 

 

 

 

 

APPENDIX B 

Medicare Part B Payments for Prescription Drugs 

Medicare beneficiaries can receive Part B drugs through hospital 

outpatient departments, physicians’ offices, and DME suppliers. 

Payments in the hospital outpatient setting. Medicare pays most hospital 

outpatient departments for Part B drugs on the basis of ASPs, but only 

when the drugs are considered “separately payable.”39, 40 A drug is 

separately payable when (1) its estimated per-drug, per-day costs are 

greater than $80 (for 2013), or (2) it has been granted “pass-through” 

status by CMS, regardless of whether the cost exceeds the $80-per-day 

packaging threshold.41, 42, 43 In contrast, “packaged drugs” are inexpensive 

Part B drugs that do not exceed the packaging threshold and are also not 

pass-through drugs. CMS does not make separate payments for packaged 

drugs; it includes payment for these drugs as part of the payment for the 

treatment during which the drugs are administered.44 

The Act does not define a set payment methodology (e.g., 106 percent of 

ASP) for certain separately payable drugs administered in a hospital 

outpatient setting. Rather, through the rulemaking process, CMS annually 

updates the ASP-based payment methodology for separately payable drugs 

that are not pass-through drugs, and publishes a quarterly file on its Web 

site listing payment amounts for these drugs. For 2013, CMS set the 

Medicare payment amount for non-pass-through separately payable drugs 

____________________________________________________________ 

39 CAHs; certain hospitals in Maryland; hospitals located outside one of the 50 States, the 

District of Columbia, and Puerto Rico; and hospitals of the Indian Health Service are not
 

paid on the basis of ASPs. They are excluded from OPPS and are paid at cost. 42 CFR
 

§ 419.20(b).

40 Medicare Claims Processing Manual, ch. 4 § 10.3.
 41 77 Fed. Reg. 68210, 68377 (Nov. 15, 2012). 

42 Section 1833(t)(6)(A) of the Act provides for temporary additional payments, or
 

“transitional pass-through payments,” for certain drugs, including new drugs and
 

“orphan” drugs. Section 1833(t)(6)(A)(i) of the Act defines orphan drugs as drugs that 

are used for a rare disease or condition with respect to which the drug has been 

designated as an orphan drug under section 526 of the Federal Food, Drug, and Cosmetic 

Act. 

43 The “packaging threshold” refers to the “packaging” of payment for dependent,
 

ancillary, supportive, and adjunctive items and services into the payment for the primary
 

independent service. In 2013, drugs with a per-day cost of less than or equal to $80 were
 

packaged under the service with which the drug was administered. 44 CMS, Hospital Outpatient Prospective Payment System, December 2014. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 18 
 

 

 

 

at 106 percent of the volume-weighted ASP.45 The payment method for 

pass-through drugs was equal to 106 percent of ASP in 2013.46 Medicare 

beneficiaries are responsible for 20 percent of Medicare payments in 

coinsurance. 

Payments in the physician-office and DME supplier settings. Medicare 

also pays physicians and DME suppliers for most Part B covered drugs 

using a methodology based on ASPs.47 Payment amounts for most Part B 

drugs are statutorily set at 106 percent of the volume-weighted ASPs. 

Each quarter, CMS publishes on its Web site a payment-amount file that 

includes payment amounts for drugs that could be billed in the 

physician-office and/or DME setting. Likewise, DME Medicare 

Administrative Contractors (MACs) also publish each quarter on their 

Web sites payment-amount files for drugs that could be billed in the DME 

setting. 

____________________________________________________________ 

45 77 Fed. Reg. 68216 (Nov. 15, 2012). Part B claims dated on or after April 1, 2013, 

incur a 2-percent reduction in payment in accordance with the Budget Control Act of 

2011 and the American Taxpayer Relief Act of 2012 (i.e., sequestration). This 

mandatory payment reduction is applied after the beneficiary’s coinsurance has been
 

determined, resulting in a payment rate for most Part B drugs of 104.3 percent of the 

volume-weighted ASP. For further explanation, see http://www.cms.gov/outreach-andeducation/outreach/ffsprovpartprog/downloads/2013-03-08-standalone.pdf.
 46 77 Fed. Reg. 68210, 68367 (Nov. 15, 2012). 

47 Several Part B drugs, including certain vaccines, blood products, and DME infusion
 

drugs, are paid for on the basis of AWPs and not on the basis of ASPs. Sections
 

1847A(a)(1) and 1842(o)(1) of the Act. See also Medicare Claims Processing Manual, 

ch. 17 § 20.1.3. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 19 
 

 

 

 

 

 

 

APPENDIX C 

Detailed Methodology 

Data Sources and Collection 

Part B Payment Amounts and ASPs. We used CMS’s first-quarter 2013 

through second-quarter 2014 payment amount files to obtain the 

ASP-based payment amounts in the hospital outpatient, DME, and 

physician-office settings and to calculate ASPs for Part B HCPCS codes.48 

We used CMS’s 2013 quarterly payment amount files and DME MACs’ 

quarterly 2013 payment files to obtain AWP-based payment amounts for 

each DME infusion HCPCS code under review.49 

ASP Data. We obtained from CMS the quarterly ASP background files for 

the third and fourth quarters of 2012 and the first and second quarters of 2013 

on which 2013 ASP-based payment amounts were based.50 The 

background files link ASP-based HCPCS codes to the related NDCs 

included in the ASP calculation, including a determination of how many 

units of a given NDC are represented by the HCPCS code. We also 

obtained from the background files the quarterly ASPs and number of 

units sold as reported by manufacturers for all NDCs associated with the 

relevant HCPCS codes. Because there is a two-quarter lag between the sales 

period for which ASPs are reported and the effective date of the Part B 

payment amounts, we obtained background files for the third and fourth 

quarters of 2012 and the first and second quarters of 2013. 

Paid Part B Claims. On April 29, 2014, we obtained from the NCH all 

2013 paid claims (i.e., claims from the hospital outpatient, 

physician-office, and DME settings) for all drug HCPCS codes to 

____________________________________________________________ 

48 Because there is a two-quarter lag between the sales period for which ASPs are 

reported and the effective date of the Part B payment amounts, we obtained first-quarter 

and second-quarter 2014 payment amount files to calculate ASPs for the third quarter and 

fourth quarter of 2013. 

49 DME infusion drugs are paid for on the basis of ASPs if they were compounded or 

furnished incident to a professional service. Otherwise, they are paid on the basis of 

AWPs that were in effect on October 1, 2003. See section 1842(o)(1)(D)(i) of the Act 

and Medicare Claims Processing Manual, ch. 17 § 20.1.3. 50 Because Medicare Part B reimbursement for outpatient drugs is based on HCPCS 

codes rather than on NDCs and more than one NDC may meet the definition of a 

particular HCPCS code, CMS has developed the background file and the crosswalk file to 

“crosswalk” NDCs to their matching HCPCS codes. Both files are released quarterly by 

CMS and CMS uses information in these files to calculate volume-weighted ASPs for 

covered HCPCS codes; however, the background file is not publicly available because it 

contains manufacturer-reported information on ASPs and units sold. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 20 
 

 

 

 

 

 

determine quarterly utilization and spending.51, 52 To identify the providers 

who billed and received payments, we obtained provider identifiers listed 

on each claim (i.e., NPIs and TINs).53 

Covered Entities Database. We obtained the covered entities database 

from HRSA on April 3, 2014, and used it to identify covered entities 

eligible to purchase drugs at 340B prices in 2013. The 340B Program 

requires each location (i.e., covered entity site) to be registered 

individually in HRSA’s covered entities database.54 We obtained NPIs, 

Medicare Provider Numbers, Medicaid Provider Numbers, and 

HRSA-assigned identification numbers for covered entity sites listed in 

the covered entities database. 

For each covered entity site, we used the covered entities database to 

obtain the participation start and termination dates and the codes for 

covered entity type (e.g., CAH, DSH).55 

Medicaid Exclusion File. We obtained the Medicaid Exclusion File from 

HRSA on May 26, 2015, to identify covered entity sites that should not 

use 340B-purchased drugs for their Medicaid patients (i.e., covered 

entities that use the “carve out” approach), including for 

Medicare/Medicaid dual-eligibles. 

Medicare Enrollment Database. We obtained the Medicare beneficiary 

enrollment database from CMS to identify dual-eligible beneficiaries. 

Medicare Provider Enrollment, Chain, and Ownership System. We used 

the Medicare Provider Enrollment, Chain, and Ownership System

 ____________________________________________________________ 

51 Previous OIG work showed that the number of units listed in claims for blood-clotting 

factors often underrepresent the actual number of HCPCS units reimbursed by a 

substantial margin. We calculated the correct number of Medicare units by dividing the 

total Part B spending in each setting by the Part B payment amount in each quarter in that 

particular setting. See OIG, Medicare Could Collect Billions if Pharmaceutical 

Manufacturers Were Required to Pay Rebates for Part B Drugs, OEI-12-12-00260, 

September 2013. 

52 Hospital outpatient claims refer to any claims in the NCH institutional outpatient file, 

which includes not only hospitals but also entities such as clinics or health centers. We 

only included hospital outpatient claims if they were paid under OPPS. Therefore, 

CAHs; certain hospitals in Maryland; hospitals located outside one of the 50 States, the 

District of Columbia, and Puerto Rico; and hospitals of the Indian Health Service were 

excluded from our analysis because they are excluded from OPPS. 53 The NPI is a unique 10-digit identification number for health care providers (both 

individual providers and organizational providers). On DME and physician claims, the 

TIN represents the entity that received payment from Medicare. 54 HRSA, 340B Hot Topics. Accessed at http://www.hrsa.gov/opa/updates/ 

august2014.html on February 18, 2015.
 55 HRSA, 340B Program Acronyms for Covered Entity Types and/or Grantees. Accessed 

at http://opanet.hrsa.gov/opa/CoveredEntityAcronyms.aspx on February 18, 2015.
 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 21 
 

 

 

(PECOS) to obtain the names and addresses of organizations associated 

with TINs listed on paid drug claims from DME and physician-office 

settings. 

National Plan and Provider Enumeration System. We used the National 

Plan and Provider Enumeration System (NPPES) to identify NPIs that had 

been “crosswalked” to Medicare Provider Numbers and Medicaid 

Provider Numbers listed in the covered entities database.56 

340B Ceiling Price, AMP, and URA Data. For every NDC associated with 

the HCPCS codes under review, we obtained from HRSA the 340B ceiling 

prices that were in effect in each quarter of 2013. We also obtained from 

HRSA and CMS the manufacturer-reported AMPs and Medicaid URAs on 

which 340B ceiling prices were based. 

Data Analysis 

Selection of NDCs Used in Payment Amount Calculations. A total of 

636 HCPCS codes paid for on the basis of ASPs were listed in CMS’s 

2013 quarterly payment amount files. Using CMS’s quarterly ASP 

background files, we selected the NDCs that were used to calculate the 

ASP-based Part B payment amounts for 2013 for each of the 636 HCPCS 

code under review. We removed 68 HCPCS codes because none of the 

associated NDCs had ASPs that were included in payment-amount 

calculations.57 

Calculation of HCPCS Code 340B Ceiling Prices. 340B ceiling prices 

(i.e., the maximum amount that covered entities pay for 340B-purchased 

drugs) are calculated for the entire package of a drug represented by the 

NDC. Because units of a drug represented by an NDC often differ from 

the units of a drug represented by a HCPCS code, we converted the 340B 

ceiling price for each NDC under review to HCPCS code units.58 We first 

divided HRSA’s per-package 340B ceiling price by the package size to 

calculate a per-unit 340B ceiling price for each NDC. If HRSA-reported 

340B ceiling prices were not available, we used manufacturer-reported 

AMPs and URAs to calculate the NDC’s per-unit 340B ceiling price using 

the statutory formula (i.e. AMP minus URA). We then multiplied the 

____________________________________________________________ 

56 CMS issued NPIs beginning in 2005 to meet a requirement of the Health Insurance 

Portability and Accountability Act of 1996. The NPI was implemented as a single 

national identifier for use in standard electronic health care transactions; it was meant to 

replace Medicaid Provider Numbers, Medicare Provider Numbers, and other identifiers 

that providers use to bill specific health plans. 

57 The ASPs associated with these NDCs were either not reported by manufacturers or 

were deemed unusable by CMS. 

58 Because 340B ceiling prices are the maximum price a manufacturer should charge
 

covered entities, they serve as a proxy for covered entities’ drug acquisition costs. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 22 
 

per-unit 340B ceiling price by the total number of units of a drug 

contained in the HCPCS code to calculate a 340B ceiling price per 

HCPCS unit for each NDC. 

We removed 74 HCPCS codes because none of their associated NDCs had 

a 340B ceiling price, AMP, or URA. We removed an additional four 

HCPCS codes because of concerns about the accuracy of pricing data. 

We then calculated a weighted 340B ceiling price for each of the 

490 remaining HCPCS codes. We used CMS’s 2013 quarterly ASP 

background files to determine the percentage of total sales that each 

associated NDC represented within a HCPCS code (i.e., one NDC 

represented 10 percent of total sales, another NDC represented 

15 percent), and then weighted each NDC’s 340B ceiling price by this 

percentage to determine an overall 340B ceiling price for each HCPCS 

code in every quarter. 

Identifying Covered Entities Enrolled in the 340B Program. Using the 

participation start and termination end dates listed in HRSA’s covered 

entities database, we removed covered entity sites that were not enrolled in 

the 340B Program in at least one quarter of 2013. There were 

25,039 covered entity sites that participated in the 340B Program for at 

least one quarter of 2013.59 

Identifying Hospital Outpatient Claims Associated With Covered Entities. 

We obtained paid hospital outpatient claims for the 490 HCPCS codes 

under review. Because Part B claims do not identify whether the claim is 

for a 340B-purchased drug, we obtained the NPIs of covered entity sites 

from HRSA’s database. If a covered entity site did not have an NPI listed 

in HRSA’s database, we used NPPES to crosswalk its Medicare Provider 

Numbers and Medicaid Provider Numbers (i.e., alternate identifiers) to 

NPIs. A Medicaid Provider Number or Medicare Provider Number may 

be associated with multiple NPIs, and a covered entity may not use all 

NPIs to bill Medicare for 340B-purchased drugs. Because there was no 

way to identify the specific NPI that a covered entity site uses to bill 

Medicare for 340B-purchased drugs, we kept covered entity sites in our 

analysis of 340B hospital expenditures only if they were associated with a 

single NPI. 

Because some covered entities (typically nonhospitals) are not required to 

provide their NPIs or alternate identifiers to HRSA upon applying to 

participate in the 340B Program, 7,688 covered entity sites enrolled in the 

340B Program in 2013 did not have an NPI or alternate identifier listed in 

____________________________________________________________ 

59 We included a covered entity site in our analysis in a particular quarter if it was 

enrolled in the 340B Program for the entire quarter. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 23 
 

the covered entities database. After we removed covered entity sites with 

identifiers that crosswalked to multiple NPIs, covered entity sites with 

identifiers that did not crosswalk to any NPIs, and covered entity sites 

with no identifiers listed in the database, 14,878 covered entity sites 

remained in our analysis of 340B hospital outpatient expenditures (see 

Table 5). We matched the NPIs associated with these covered entity sites 

to hospital outpatient claims. 

Table 5: Summary of Covered Entities Included in 340B Hospital 

Outpatient Expenditure Analysis 

Whether 

Included in 

Analysis 

Reason Number of Covered 

Entity Sites 

Included in 

analysis 

NPI listed in database 9,014 

Alternate identifier crosswalked to a single NPI 5,864 

Total included in analysis 14,878 

Not included in 

analysis 

Alternate identifier crosswalked to multiple NPIs 1,772 

Alternate identifier not crosswalked to any NPIs 701 

No NPI or alternate identifier listed in database 7,688 

Total excluded from analysis 10,161 

TOTAL ENROLLED IN THE 340B PROGRAM IN 2013 25,039 

Source: OIG analysis of NPPES and HRSA’s covered entities database downloaded on April 3, 2014. 

Identifying DME and Physician-Office Claims Associated With Covered 

Entities. We obtained paid DME and physician claims for the 490 HCPCS 

codes under review. Resource constraints required that we select a sample 

of claims. Therefore, we selected all claims for providers that constituted 

95 percent of spending in the physician-office setting and claims for 

providers that constituted 98 percent of spending in the DME setting. 

Although physicians are not considered covered entities, a previous study 

found that physicians associated with covered entities may bill Part B with 

their personal NPIs and organizational TINs instead of the covered 

entities’ NPIs (i.e., the physician performs the service, but the entity 

receives the payment).60, 61 Because physicians do not individually register 

with the 340B Program, their personal NPIs would not be in HRSA’s 

database of covered entities. To identify drug claims submitted by 

____________________________________________________________ 

60 OIG, Medicare Could Collect Billions if Pharmaceutical Manufacturers Were 

Required to Pay Rebates for Part B Drugs, OEI-12-12-00260, September 2013. 61 On Part B physician and DME claims submitted by a physician or supplier associated 

with a covered entity, the TIN represents the entity that received payment from Medicare. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 24 
 

 

 

covered entities in nonhospital outpatient settings, we obtained the 

organizational TIN on each physician-office and DME drug claim 

included in our analysis. We then matched the TINs to PECOS to obtain 

the associated name and address of the organization for which the 

physician is an employee. Finally, we matched the name and address of 

the organization to HRSA’s covered entities database to determine whether 

each organization that submitted a paid claim is a covered entity. We 

manually checked each match to ensure that the TIN represents a covered 

entity. 

Identifying Claims for Drugs Not Eligible for 340B Pricing. After 

removing HCPCS codes with no paid Part B claims in our sample, we 

identified claims submitted by “carve-out” covered entities for 

dual-eligible beneficiaries. Drugs listed on these claims should not have 

been purchased at 340B prices. We first matched hospital outpatient, 

DME, and physician-office claims submitted by covered entities to the 

Medicaid Exclusion File using HRSA-assigned identification numbers 

associated with each provider for covered entity sites. Covered entities 

not listed in the Medicaid Exclusion File are carve-out covered entities. 

We then identified whether the claims submitted by carve-out covered 

entities were for dual-eligible beneficiaries by matching Medicare Health 

Insurance Claim Numbers (HICs) on the claims to the Medicare 

beneficiary enrollment database. 

We also removed claims for six vaccine HCPCS codes because vaccines 

are not eligible for 340B pricing.62 Claims for 472 HCPCS codes 

accounting for 86 percent ($19 billion) of total Part B drug expenditures in 

2013 remained in our analysis (see Table 6). 

Table 6: Summary of Part B Drug HCPCS Codes Included in Analysis 

Description Number of 

HCPCS Codes 

HCPCS codes paid on the basis of ASPs in at least one setting 636 

After removing NDCs excluded from payment amount calculations 568 

After removing HCPCS codes for which 340B ceiling prices could not be 

calculated 

494 

After removing NDCs with potentially inaccurate pricing data 490 

HCPCS codes with Part B expenditures in our sample 478 

After removing 6 HCPCS codes representing vaccines 472 

____________________________________________________________ 

62 Vaccines are not considered to be covered outpatient drugs for purposes of the 

Medicaid drug rebate program. See, e.g., Section 1927(k)(2) of the Act. Accordingly, 

they are not subject to the 340B program. 42 U.S.C. § 256b(b)(2). 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 25 
 

 

 

Source: OIG analysis of quarterly 2013 Part B payment amount files, CMS and HRSA pricing data, and 2013 NCH 

claims from the hospital outpatient, DME, and physician-office settings. 

Summarizing Part B Spending for 340B-Purchased Drugs. We divided 

claims for the 472 HCPCS codes into two groups based on whether the 

claims represented 340B or non-340B purchases. We compared 2013 

hospital outpatient, DME, and physician-office expenditures for 

340B-purchased drugs and non-340B drugs. 

Comparison of 340B Ceiling Prices to Part B Payment Amounts. For each 

HCPCS code with 340B expenditures, we calculated the percentage 

difference between the code’s quarterly payment amount in each setting 

(i.e., hospital outpatient, DME, and physician office) and its 340B ceiling 

price. We then calculated a median difference across all quarters to 

determine the annual percentage difference between Part B payment 

amounts and 340B ceiling prices for each individual HCPCS code. 

For each quarter, we also estimated the aggregate difference between 

340B ceiling prices and Medicare payment amounts among all codes by 

multiplying each HCPCS code’s 340B utilization by its 340B ceiling price 

(i.e., the estimated drug acquisition cost for covered entities), summing the 

quarterly estimates, and comparing the result to Part B 340B expenditures. 

Comparing Estimated Acquisition Costs Per Beneficiary For HCPCS 

Codes Representing High-Expenditure Cancer Drugs. We examined the 

highest expenditure Part B HCPCS codes in 2013 and determined that 7 of 

the 11 highest expenditure drugs are used in chemotherapy. Therefore, we 

selected a purposive sample of five high-expenditure HCPCS codes 

representing cancer drugs.63 For each HCPCS code, we compared the 

acquisition costs for covered entities to those for other providers. To 

estimate how much covered entities spent per beneficiary to acquire the 

cancer drugs, we multiplied each HCPCS code’s quarterly 340B ceiling 

price by the number of 340B units and divided the result by the total 

number of beneficiaries who received the 340B-priced drug in 2013.64, 65 

We also estimated how much providers not participating in the 

340B Program (i.e., noncovered entities) paid to acquire the same 

high-expenditure drugs. Because ASPs are based on actual sales in the 

marketplace, we concluded that they provide a reasonable estimate of 

acquisition costs for noncovered entities. For each quarter, we divided 

____________________________________________________________ 

63 Expenditures for each HCPCS code were at least $300 million in 2013. 64 To avoid duplication, when calculating per-beneficiary acquisition costs and 

per-beneficiary Part B expenditures, we removed claims for beneficiaries who received 

the drug from both a covered entity and a provider not enrolled in the 340B Program. 

65 Average units per beneficiary were approximately equal between covered entities and 

providers not enrolled in the 340B Program. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 26 
 

 

 

 

 

 

 

 

each HCPCS code’s quarterly ASP-based payment amount by 1.06 to 

calculate ASPs.66 We then multiplied each HCPCS code’s quarterly ASP 

by non-340B utilization and divided the result by the number of 

beneficiaries who received the nondiscounted drug to estimate how much 

noncovered entities spent per beneficiary to acquire the drug. We 

conducted this analysis for each quarter of 2013 and summed the quarterly 

results. For each HCPCS code, we calculated the difference between 

acquisition costs for covered entities and noncovered entities. 

We then estimated the difference between Part B payments and acquisition 

costs for covered entities and noncovered entities for each cancer drug. 

We calculated how much covered entities received per Medicare 

beneficiary for the cancer drugs by dividing 340B expenditures for each 

HCPCS code by the number of beneficiaries that received the 340B-priced 

drug. We calculated how much noncovered entities received per Medicare 

beneficiary by dividing non-340B expenditures for each HCPCS code by 

the number of beneficiaries that received the non-discounted drug. 

Calculation of Spending Reductions Under a “Shared Savings” Model. 

We determined pricing point options that would have allowed Medicare to 

share varying portions of the 340B discount in 2013 while keeping with 

the ASP-based payment methodology framework in Part B. We calculated 

the following pricing point scenarios under a “shared savings” model: 

(1) volume-weighted ASP (i.e., 100 percent of ASP), (2) volume-weighted 

ASP minus 14.4 percent, and (3) 340B ceiling price plus 6 percent of 

volume-weighted ASP. 

	 Volume-weighted ASP. We multiplied each HCPCS code’s ASP 

by its 340B utilization to determine how much would have been 

spent if payments for 340B-purchased drugs had been set at 

100 percent of the HCPCS code’s volume-weighted ASP.67 

	 ASP minus 14.4 percent. Under the current Part B payment 

methodology, covered entities retain the entire savings attributable 

to the 340B Program. We examined expenditures under a payment 

model that would allow Medicare and covered entities to equally 

share in the 340B discounts. We first divided in half the spread 

between total Part B payments for 340B-purchased drugs and 

____________________________________________________________ 

66 There is a two-quarter lag between the time when ASP sales occur and when Medicare 

payment amounts reflect those sales. As a result, ASPs in a given quarter were calculated 

using ASP-based payment amounts from two quarters later (e.g., fourth-quarter 2013 

ASPs were calculated by dividing second-quarter 2014 payment amounts by 1.06). 

67 We calculated ASPs by dividing 2013 payment amounts by 1.06. In a small number of 

instances (six per quarter, at most), a drug’s ASP-based payment amount was set at 

103 percent of the average manufacturer price rather than at 106 percent of the ASP. In 

these cases, we divided the payment amount by 1.03. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 27 
acquisition costs for those drugs to estimate how much covered 

entities would retain under a payment model for equal sharing of 

savings. We determined that Medicare would need to pay covered 

entities for 340B-purchased drugs at ASP minus 14.4 percent to 

achieve this new spread. We calculated each HCPCS code’s 

quarterly payment amount under the ASP minus 14.4 percent 

methodology using CMS’s payment amount file and multiplied the 

revised payment amount by the HCPCS code’s 340B utilization for 

each quarter of 2013. 

	 340B ceiling price plus 6 percent of ASP. We estimated how 

much Part B would pay for 340B-purchased drugs if it had paid at 

the 340B price plus the same add-on that noncovered entities 

receive for Part B drugs. For each quarter, we calculated each 

HCPCS code’s quarterly payment amount under the 340B ceiling 

price plus 6 percent of ASP by multiplying each HCPCS code’s 

ASP by .06 and adding the result to the HCPCS code’s ceiling 

price.68 We then multiplied each HCPCS code’s revised payment 

amount by its 340B utilization for each quarter of 2013. 

We conducted this analysis for each quarter and then summed the results 

to estimate potential 2013 expenditures under each pricing point. We 

calculated the difference between potential expenditures under each 

pricing point and actual Part B 340B expenditures to determine how much 

total Part B spending for 340B-purchased drugs could have been reduced 

by in 2013. We calculated 20 percent of potential spending reductions to 

estimate how much beneficiaries’ total coinsurance payments could have 

been lowered under each pricing point. Finally, we estimated how much 

above cost Part B would have paid covered entities under each pricing 

point by subtracting total acquisition costs from potential expenditures. 

Limitations 

We did not review Part B claims, pricing data, or covered entity 

enrollment data for accuracy. Because there is no identifier on Part B 

claims indicating that a drug was purchased through the 340B Program, 

we could not confirm that claims submitted by covered entities were in 

fact for drugs purchased at or below the 340B discount price. 

We eliminated from our analysis of 340B expenditures in the hospital 

outpatient setting more than 10,000 covered entity sites listed in the 

covered entities database because we could not identify the NPIs with 

which covered entities would bill Part B in the hospital outpatient setting. 

____________________________________________________________ 

68 Because we did not have access to actual 340B prices paid by covered entities, we used 

340B ceiling prices as proxies for the drug costs. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 28 
 

 

 

 

 

As a result, any claims for 340B-purchased drugs potentially made by 

these covered entities were not included in our estimates. Furthermore, 

we used 340B ceiling prices (i.e., the maximum amount that a covered 

entity paid a manufacturer to acquire a drug) instead of actual 340B prices 

in our calculations. For example, covered entities that participate in the 

Prime Vendor Program purchase drugs at an average discount of 

10 percent below the 340B ceiling price. 69 As a result, we may have 

overestimated covered entities’ acquisition costs and underestimated 

potential payment reductions under a shared-savings methodology by 

approximately 10 percent. 

Under the PHS Act, drugs with “orphan” designations are excluded from 

the 340B Program for newly eligible covered entity types (certain 

children’s hospitals, certain freestanding cancer hospitals, CAHs, rural 

referral centers, and sole community hospitals).70 At the time of our 

review, the Act was interpreted to require manufacturers to offer certain 

covered entities 340B pricing on drugs that had received an orphan 

designation when those drugs were used to treat conditions other than 

those for which they received their orphan designation.71 Because (1) we 

could not determine the indication for which a drug was administered, 

(2) there are complexities in crosswalking the names of orphan drugs to 

the 420 drug HCPCS codes with 340B expenditures in 2013, and 

(3) payments to the newly eligible covered entity types did not account for 

a significant portion of Part B drug spending, we did not remove orphan 

drugs from our analysis for these types of covered entities. 

Under sequestration, the effective payment rate for Part B drugs was 

reduced between 1 and 2 percent after April 1, 2013.72 Neither the 

published payment amounts nor expenditure data reflect these reductions. 

Therefore, we did not take any sequestration-related payment reductions 

into account when comparing 340B ceiling prices to Part B payment 

amounts or when estimating expenditure decreases under a revised 

payment methodology for 340B-purchased drugs. 

We included 472 HCPCS codes accounting for 86 percent ($19 billion) of 

total Part B expenditures in our review. Findings related to the purposive 

____________________________________________________________ 

69 U.S. Department of Health and Human Services, HRSA FY2015 Budget Justification. 70 Section 340B(e) of the PHS Act. (For more on “orphan” drugs, see footnote 42, p. 15.) 

71 HRSA, Interpretive Rule: Implementation of the Exclusion of Orphan Drugs for 

Certain Covered Entities Under the 340B Program. HRSA’s interpretation was struck 

down in Federal court on October 14, 2015, and the interpretive rule has been vacated. 72 CMS, “Mandatory Payment Reductions in the Medicare Fee-for-Service (FFS) 

Program—‘Sequestration’,” CMS Medicare FFS Provider e-News, March 8, 2013. 

Accessed at http://www.cms.gov/outreach-and-education/outreach/ffsprovpartprog/ 

downloads/2013-03-08-standalone.pdf on April 10, 2015. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 29 
sample of 472 HCPCS codes cannot be generalized to all Part B drug 

HCPCS codes. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 30 
ACKNOWLEDGMENTS 

This report was prepared under the direction of Dave Tawes, Regional 

Inspector General for Evaluation and Inspections in the Baltimore regional 

office, and Louise Schoggen, Assistant Regional Inspector General. 

Bahar Adili served as the lead analyst for this study. Central office staff 

who provided support include Mandy Brooks, Berivan Demir Neubert, 

Meghan Kearns, and Christine Moritz. 

Part B Payments for 340B-Purchased Drugs (OEI-12-14-00030) 31 
Office of Inspector General

http://oig.hhs.gov 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 

amended, is to protect the integrity of the Department of Health and Human Services 

(HHS) programs, as well as the health and welfare of beneficiaries served by those 

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