Introduction
At the core of every compliant and financially successful 340B program is a well-functioning 340B replenishment model. While many covered entities focus heavily on eligibility, referral capture, and contract pharmacy operations, replenishment is where theory becomes reality. If replenishment logic is incorrect, even perfectly eligible prescriptions can result in compliance risk, lost savings, or audit findings.
Understanding what a 340B replenishment model is—and how it operates within a complex healthcare environment—is essential for pharmacy leaders, compliance officers, and executives responsible for protecting the integrity of the 340B benefit. This article explains the mechanics of replenishment models, common approaches used today, and the controls required to ensure accuracy and audit defensibility.
Need help validating your replenishment model? Contact Cooper Strategy
Defining the 340B Replenishment Model
What a 340B Replenishment Model Is
A 340B replenishment model is the methodology used to replace drugs dispensed or administered to eligible patients with inventory purchased at the appropriate pricing level—340B, WAC, or GPO—based on eligibility determinations. Rather than tracking each physical unit of medication, most covered entities rely on virtual inventory replenishment, where eligible usage generates a recommendation to purchase replacement drugs at 340B pricing.
The replenishment model connects clinical activity, eligibility determination, and purchasing decisions into a single compliance-controlled workflow.
Why Replenishment Is Central to Compliance
HRSA does not regulate inventory form—it regulates outcomes. Covered entities must be able to demonstrate that drugs purchased at 340B pricing were used only for eligible outpatient patients. The replenishment model is how that proof is operationalized. Errors in replenishment logic can create diversion, duplicate discounts, or inaccurate purchasing—each of which is a serious audit risk.
How the 340B Replenishment Process Works
Step 1: Drug Dispense or Administration
The process begins when a drug is dispensed at a contract pharmacy or administered in an outpatient clinical setting. Data captured includes:
- Drug identifier (NDC or HCPCS)
- Quantity administered or dispensed
- Date and location of service
- Patient and encounter information
- Prescribing or rendering provider
This data becomes the foundation for eligibility determination.
Step 2: Eligibility Determination
The TPA or split-billing system evaluates whether the transaction meets 340B eligibility requirements by assessing:
- Patient definition criteria
- Encounter documentation
- Outpatient status
- Provider eligibility
- Site-of-service eligibility
- Duplicate discount exclusions
Only eligible transactions proceed to accumulation.
Step 3: Accumulation of Eligible Usage
Eligible transactions are accumulated in a virtual inventory ledger. Accumulations are tracked by:
- Drug (NDC)
- Quantity
- Time period
- Location or pharmacy
- Purchasing account eligibility
Accumulation does not move physical inventory—it records eligibility.
Step 4: Replenishment Recommendation
Once accumulations reach defined thresholds, the system generates a replenishment recommendation. This instructs the covered entity to purchase replacement inventory at:
- 340B pricing for eligible outpatient use
- WAC pricing when eligibility is not met
- GPO pricing for inpatient use (where permitted)
Accurate replenishment depends on accurate eligibility and accumulation.
Step 5: Inventory Reconciliation
The final step ensures purchased inventory aligns with accumulated usage. Reconciliation validates:
- Purchases match accumulated quantities
- NDCs align correctly
- No negative balances exist
- Timing windows are appropriate
Reconciliation supports audit defensibility.
Common Types of 340B Replenishment Models
Virtual Inventory Replenishment
This is the most widely used model. Physical inventory is not separated; instead, virtual records track usage and eligibility. This model relies heavily on data integrity, system integration, and accurate logic.
Mixed Physical and Virtual Inventory
Some hospitals maintain limited physical separation for high-risk drugs while using virtual replenishment for others. This hybrid approach may reduce risk in certain areas but increases operational complexity.
Contract Pharmacy Replenishment Models
For contract pharmacies, replenishment models involve:
- Prescription-level eligibility determination
- Accumulation of eligible dispenses
- Replenishment through the covered entity’s 340B account
- Chargeback or credit reconciliation
Contract pharmacy replenishment is highly scrutinized and requires precise data.
Why Replenishment Models Fail
Inaccurate Eligibility Logic
If eligibility determinations are flawed, replenishment will be incorrect—resulting in diversion or missed savings.
Poor NDC Mapping
Incorrect NDC crosswalks cause accumulation errors and mismatched purchases.
Integration Breakdowns
Delayed or incomplete data feeds lead to missed accumulations or over-purchasing.
Timing Mismatches
Replenishment windows that are too long or too short create imbalance and audit exposure.
Overreliance on Vendor Logic
Covered entities remain responsible for replenishment accuracy—even when vendors manage systems.
Replenishment Risks Auditors Focus On
Over-Accumulation
Accumulating more inventory than eligible usage supports is treated as diversion.
Negative Inventory Balances
Negative balances indicate system errors or reconciliation failures.
Ineligible Purchasing
Purchasing 340B drugs without sufficient eligible usage creates repayment risk.
Contract Pharmacy Misalignment
Mismatched contract pharmacy replenishment creates duplicate discount exposure.
Best Practices for Managing 340B Replenishment Models
Perform Regular Replenishment Audits
Sample replenishment records to validate:
- Eligibility determinations
- Accumulation accuracy
- Purchase alignment
- Reconciliation completeness
Validate NDC Crosswalks Quarterly
NDC changes occur frequently. Crosswalk accuracy must be monitored continuously.
Align Replenishment With Policy
Policies should clearly define:
- Replenishment timing
- Inventory thresholds
- Exception handling
- Escalation procedures
Monitor Exception Reports Daily
Exception reports identify:
- Accumulation failures
- Purchase mismatches
- Integration errors
- Inventory anomalies
Early detection prevents large compliance failures.
Maintain Audit-Ready Documentation
Replenishment decisions must be reproducible through data logs and reports.
Want an independent assessment of your replenishment model? Contact Cooper Strategy
Conclusion
A 340B replenishment model is far more than a purchasing workflow—it is the compliance backbone of the program. When replenishment works correctly, it transforms eligibility determinations into defensible, audit-ready purchasing decisions. When it fails, even strong programs face serious risk.
Covered entities that invest in understanding, monitoring, and validating their replenishment models protect both their compliance standing and the financial value of their 340B programs.
Frequently Asked Questions About What Is a 340B Replenishment Model?
Why is a replenishment model required instead of tracking physical inventory?
Tracking physical inventory in mixed-use environments is operationally impractical. Virtual replenishment allows covered entities to match eligible usage with appropriate purchasing without physically separating inventory. HRSA permits this approach as long as the outcome is compliant. The replenishment model must accurately reflect eligibility and purchasing decisions.
How do replenishment errors create compliance risk?
Errors in replenishment can lead to purchasing drugs at 340B pricing without sufficient eligible usage, which is considered diversion. Over-accumulation, negative balances, or mismatched purchases are common audit findings. These errors often stem from data integration failures or incorrect eligibility logic.
Are replenishment models different for contract pharmacies?
Yes. Contract pharmacy replenishment involves prescription-level eligibility, claim reconciliation, and coordination with payer data. Because manufacturers scrutinize contract pharmacy claims closely, replenishment accuracy is especially critical in these arrangements.
How often should replenishment be audited?
High-performing programs review replenishment activity daily through exception reports and conduct deeper audits monthly or quarterly. Annual comprehensive audits validate the full model. Continuous monitoring is essential to prevent silent accumulation errors.
How can Cooper Strategy help improve replenishment accuracy?
Cooper Strategy evaluates replenishment logic, validates eligibility determinations, reviews NDC crosswalks, and tests reconciliation workflows. We help covered entities identify risks, correct errors, and build governance structures that ensure replenishment accuracy and audit defensibility.