New Covered Entities Guide to the 340B program

The 340B Drug Pricing Program is a transformative federal initiative that allows eligible health care organizations – known as covered entities – to purchase outpatient medications at significantly reduced prices. For new covered entities, understanding and navigating the 340B program can unlock substantial cost savings and enable expanded care for underserved populations.

This comprehensive guide provides a strategic overview of the 340B program, explaining its purpose, how it works, who can participate, and what new covered entities need to know to maximize benefits while maintaining compliance. By mastering the fundamentals and best practices outlined here, your organization can confidently leverage 340B savings to further your mission.

If you’d like help building or optimizing your 340B strategy as you read, you can always contact the Cooper Strategy team for expert guidance.

What Is the 340B Program?

The 340B program was established by the U.S. Congress in 1992 with a clear goal: to help safety-net health care providers stretch their limited resources. Under this program, pharmaceutical manufacturers who participate in Medicaid agree to sell certain outpatient drugs to eligible health care providers at deeply discounted prices. The program is named after Section 340B of the Public Health Service Act, which defines its framework and basic rules.

In practice, the 340B program enables a covered entity to buy medications at a discount – often 20–50% off typical acquisition costs – and then use or dispense those drugs for patient care. The savings or margin generated from 340B pricing can then be reinvested into clinical programs, patient services, and charity care, effectively extending the reach of federal resources to more patients.

A few important characteristics of the program for new participants:

It is not a grant program. There is no lump-sum payment. The benefit comes through reduced drug acquisition costs.
The program focuses on outpatient drugs and eligible patients of the covered entity.
The intent is to allow participating organizations to “stretch scarce resources” – not to profit in a vacuum, but to reinvest in access, services, and quality.

For new covered entities, it is helpful to think of 340B as an engine that turns drug purchasing efficiency into strategic capacity: more visits, more services, more support for the patients who need you most.

Why the 340B Program Matters for New Covered Entities

For organizations newly qualified as covered entities, the 340B program offers a game-changing opportunity.

1. Financial Stability and Resilience

Drug costs are one of the fastest-growing expense lines for hospitals, FQHCs, and specialty clinics. 340B discounts directly reduce those costs. Over time, the difference between paying full acquisition cost and the 340B price can add up to hundreds of thousands or even millions of dollars annually, depending on your size and prescribing profile.

Those dollars can:

Offset losses from Medicaid and Medicare under-reimbursement
Help subsidize uncompensated care
Fund critical support roles like care coordinators or clinical pharmacists

For many safety-net providers, 340B is a key pillar of long-term viability.

2. Expanded Access and Community Impact

Most organizations that make 340B a strategic priority use the savings to increase access:

Discounted or free medications for uninsured and underinsured patients
New clinical programs (e.g., diabetes, HIV, behavioral health, oncology support)
Extended hours, new access points, or telehealth offerings

In other words, 340B lets you move from “keeping the doors open” to “expanding what’s possible for our community.”

3. Strategic Differentiation

In competitive markets, 340B can help your organization stand out. Employers, payers, and community partners increasingly look for networks that can manage high-cost medications efficiently. A well-managed 340B program positions your organization as:

A partner who can help lower total cost of care
A provider with sophisticated pharmacy and financial stewardship
A mission-driven institution with concrete, measurable community benefits

If you want to design 340B as a strategic asset – not just a pharmacy discount – Cooper Strategy can work with your leadership team to build that roadmap.

Who Qualifies as a 340B Covered Entity?

The 340B statute and related regulations specify which types of organizations are eligible. In general, you qualify because you are either:

Hospital-Based Covered Entities

Certain non-profit or public hospitals that serve high volumes of low-income patients:

Disproportionate Share Hospitals (DSHs)
Children’s Hospitals
Free-Standing Cancer Hospitals
Critical Access Hospitals (CAHs)
Rural Referral Centers (RRCs)
Sole Community Hospitals (SCHs)

Hospitals typically must meet conditions such as:

Non-profit or public ownership/operation
Specific thresholds for low-income or Medicaid patient volumes
Compliance with additional rules like the Group Purchasing Organization (GPO) prohibition for some types

Non-Hospital Covered Entities

These are usually clinics or programs funded through federal grants or special authorities, including:

Federally Qualified Health Centers (FQHCs) and FQHC Look-Alikes
Ryan White HIV/AIDS Program grantees
Family planning (Title X) clinics
Sexually transmitted disease clinics
Tuberculosis clinics
Hemophilia treatment centers
Black lung clinics
Urban Indian and Native Hawaiian health centers

Each entity type has specific qualifying criteria, typically tied to grant funding, scope of services, and patient populations served.

Maintaining Eligibility

Becoming a covered entity is not a one-time event. You must:

Recertify annually with HRSA
Report changes in ownership, addresses, sites, or funding status
Ensure that child sites (e.g., additional clinics or hospital outpatient departments) meet eligibility criteria and are properly registered

Losing eligibility – or failing to keep registration information accurate – can lead to removal from the program and potential claw-backs. New covered entities should assign clear ownership for 340B eligibility monitoring inside the organization, often within compliance, finance, or pharmacy leadership.

How to Enroll in the 340B Program

Once you confirm that your organization qualifies as a covered entity, enrollment is a structured process. High-level steps include:

1. Prepare Documentation and Governance

Before touching the registration portal, make sure you have:

Documentation proving your eligibility (grant notices, Medicare cost reports, etc.)
A designated Authorizing Official (AO) – typically a senior executive authorized to legally bind the organization
A Primary Contact for day-to-day 340B communications
Initial draft policies and procedures that show you understand your obligations (even if they’ll evolve later)

2. Register Through HRSA’s 340B OPAIS Portal

HRSA’s Office of Pharmacy Affairs Information System (OPAIS) is where you:

Create your entity profile
Submit registration details
Add child sites and, later, contract pharmacies

Registrations are accepted only during fixed quarterly windows (January 1–15, April 1–15, July 1–15, October 1–15). If you miss a window, you must wait for the next. Timely planning is essential.

Once HRSA reviews and approves your application, your entity will appear in the public 340B database.

3. Understand Your Effective Date

Approval is not the same as activation. Your 340B effective date is the first day of the quarter following successful registration. For example:

Only from that effective date forward may you purchase drugs at 340B prices and treat them as 340B inventory.

4. Set Up 340B Purchasing with Wholesalers

Next, you must establish 340B accounts with your drug wholesaler(s). Typically:

The wholesaler verifies your status in the 340B database
Separate purchasing accounts are created for 340B, non-340B (WAC), and sometimes GPO purchases
Pricing and account structures are configured to ensure correct invoicing

It is good practice for new covered entities to closely monitor the first several months of purchasing to ensure that pricing and account usage are correct.

5. Build Internal Awareness

Before your effective date, hold internal briefings with:

Pharmacy leadership and staff
Clinicians and prescribers
Revenue cycle and billing teams
Compliance and finance

Everyone should understand at a high level:

What 340B is
Which patients are eligible
How the program affects daily workflow

If you want help designing a structured launch plan for your first 12 months in 340B, you can connect with Cooper Strategy to build that playbook.

Core Compliance Responsibilities for New 340B Entities

The promise of 340B is substantial, but it is balanced by strong compliance expectations. New covered entities should internalize the following pillars from day one.

1. Preventing Diversion

“Diversion” occurs when 340B-priced drugs are provided to individuals who are not eligible patients of the covered entity or are used in ineligible settings.

To prevent diversion:

Define a clear patient eligibility policy (often aligned with HRSA’s historical guidance).
Ensure that the prescribing provider is employed by, contracted with, or otherwise formally associated with your organization and that you maintain the patient’s health record.
Use reliable systems to track which prescriptions qualify for 340B inventory and which must be filled from non-340B stock.
Pay particular attention to referrals, telehealth visits, and locations where records or provider relationships may be less clear.

2. Avoiding Duplicate Discounts

Manufacturers should not provide both:

A 340B discount to the covered entity, and
A Medicaid drug rebate to the state for the same drug

New entities must decide whether to:

Carve in Medicaid – use 340B for Medicaid patients and ensure those claims are excluded from state rebate requests; or
Carve out Medicaid – avoid using 340B for Medicaid prescriptions, allowing the state to seek rebates as usual.

Whichever you choose, you must:

Communicate your decision as required
Configure billing and pharmacy systems accordingly
Periodically verify that claims are being handled in line with your carve-in or carve-out policy

3. Maintaining Auditable Records

HRSA and manufacturers can audit your 340B program. You should be prepared, at any time, to support that review with:

Purchase histories
Dispensing records
Patient charts demonstrating eligibility
Documentation of Medicaid billing practices
Records of contract pharmacy oversight and audits

Think of your documentation as your “defense file” – if it is incomplete or disorganized, your audit risk increases substantially.

4. Understanding Hospital-Specific Rules

If you are a hospital covered entity, additional rules may apply, such as:

GPO Prohibition for certain hospital types
Orphan drug restrictions for specific rural hospitals and free-standing cancer hospitals

Your pharmacy leadership and 340B program manager should understand how these rules affect purchasing patterns and inventory decisions.

5. Policies, Procedures, and Training

Compliance lives or dies through daily habits. New covered entities should:

Develop written policies and procedures covering eligibility, purchasing, inventory, contract pharmacies, and audits
Train all relevant staff initially and on a regular cadence
Update policies as the regulatory environment evolves

If you’d like a structured compliance framework or a mock-HRSA-audit to benchmark your readiness, Cooper Strategy can support your team with independent 340B audit and advisory services.

Leveraging Contract Pharmacies and In-House Pharmacies

Dispensing strategy is central to 340B performance. New covered entities typically pursue one or both of these models:

In-House Pharmacy

An on-site outpatient pharmacy allows you to:

Directly control inventory, staffing, and patient experience
Capture 340B savings in a tightly managed environment
Integrate pharmacy services with clinical operations (e.g., bedside counseling, adherence programs)

If you operate an outpatient pharmacy, your first priority is to ensure that its systems and workflows are fully aligned with 340B requirements.

Contract Pharmacies

For many entities – especially FQHCs and clinics without in-house pharmacies – contract pharmacies are essential. In this model, you contract with outside retail or specialty pharmacies to dispense medications to your eligible patients on your behalf, while you retain the 340B purchasing benefit.

Managing contract pharmacy arrangements requires diligence:

You’ll need a robust system (often the TPA’s platform) to track each prescription and ensure it meets 340B eligibility criteria.
The contract with each pharmacy should outline roles, responsibilities, data-sharing expectations, and fee structures.
Monitor the performance of each contract pharmacy – e.g., prescription volume, recurring issues, and adherence to your compliance requirements.
Start with a manageable number of contract pharmacies and expand gradually. Early on, focus on depth (quality and compliance) before breadth (number of pharmacies).

It’s also important to stay aware of the changing external environment. Some manufacturers have imposed limitations or extra data requirements for 340B drugs dispensed through contract pharmacies. You may need to adjust your network or add an in-house pharmacy over time to mitigate these constraints.

A well-designed pharmacy network – with the right mix of in-house and contract sites – is one of the highest-leverage design decisions you’ll make in 340B. If you want to review your current or planned network, Cooper Strategy can provide a strategic assessment aligned with your mission and market.

Maximizing 340B Benefits: Optimization Strategies

Once your program is operational and compliant, the next step is to optimize it. Optimization means moving beyond “we are in 340B” to “we are fully capturing appropriate value and reinvesting it in care.”

1. Data-Driven Identification of Missed Opportunities

Use data from:

Your EHR or practice management systems
Pharmacy dispensing data
Contract pharmacy and TPA reports

to identify patterns such as:

Eligible visits without corresponding 340B prescriptions
Clinics, providers, or service lines with unusually low capture rates
Contract pharmacies with inconsistent data or high rejection rates

Systematic reviews can uncover “hidden” 340B opportunities – especially around referral prescriptions, high-cost specialty drugs, and satellite clinics.

2. Referral Capture and New Patient Procurement

Two key growth levers are:

Referral capture – ensuring that prescriptions written by outside specialists to whom you have referred your patients are appropriately captured as 340B when they meet eligibility criteria and continuity-of-care standards.
New patient procurement – strategically expanding your patient base and aligning care pathways so that more patients who need high-cost medications receive those services through your covered entity.

Both require tight coordination between:

Care management and referral processes
Data capture and integration
Contract pharmacy networks

Done well, these strategies can significantly increase 340B revenue while improving access for patients – particularly in complex disease states like oncology, rheumatology, or HIV.

3. Corporate Expense Reduction and Inventory Optimization

From a financial perspective, optimization isn’t only about generating more 340B revenue; it also involves reducing waste and unnecessary spend. Focus on:

Ensuring drugs are always purchased through the appropriate channel (340B, WAC, GPO) based on eligibility and restrictions
Minimizing expired or unused inventory
Aligning formulary choices with both clinical best practice and 340B efficiency
Reviewing wholesaler and manufacturer contracts for opportunities to negotiate better terms

A careful review of purchasing patterns can often reveal quick wins – for example, shifting recurring purchases from WAC to 340B for drugs used predominantly in eligible outpatient settings, or consolidating inventory to reduce waste.

4. Continuous Compliance Monitoring

Optimization and compliance go hand in hand. As you capture more value from 340B, your risk profile changes. Maintain:

Regular internal audits of both in-house and contract pharmacy activity
Ongoing review of Medicaid carve-in/carve-out performance
Clear escalation paths when discrepancies are found

A mature, optimized 340B program is one where every dollar of value is balanced by robust, well-documented controls.

If you want a partner to help you build out referral capture, new patient procurement, and corporate expense reduction without compromising compliance, Cooper Strategy specializes in these 340B growth levers.

Preparing for 340B Audits and External Scrutiny

New covered entities should operate under a simple assumption: you will be audited at some point. Audit readiness should be baked into your program from day one.

What Auditors Look For

Whether it’s HRSA or a manufacturer, audits typically focus on:

Patient eligibility for sampled prescriptions
Accurate use of 340B inventory (no diversion)
Prevention of duplicate discounts on Medicaid claims
Correct use of purchasing channels (340B vs WAC vs GPO)
Oversight and documentation for contract pharmacies
The presence and implementation of written policies and procedures

Auditors may request records for a specific period, a sample of prescriptions, contract pharmacy arrangements, and your self-audit reports.

Building an Audit-Ready Program

To be audit-ready:

Maintain a centralized documentation library for policies, training records, and audit reports.
Ensure every 340B transaction can be tied back to a patient record demonstrating eligibility.
Document every contract pharmacy relationship and any corrective actions you’ve taken based on internal findings.
Conduct regular mock audits, either internally or with external experts, to test your controls and documentation.

The best time to discover a gap is during your own review – not during a formal audit. If you need an objective evaluation of your audit readiness, Cooper Strategy offers independent 340B audit and remediation planning.

Common Challenges for New Covered Entities

Even well-run organizations struggle with 340B at first. Some frequent challenges include:

Limited internal expertise – the rules are nuanced, and few people start as 340B experts.
Fragmented systems – EHR, billing, and pharmacy platforms may not integrate cleanly.
Under-captured volume – referral prescriptions and contract pharmacy claims may not be fully captured.
Manufacturer restrictions – evolving contract pharmacy limitations or data-sharing requirements.
Resource constraints – difficulty dedicating staff time to ongoing 340B management.

Overcoming these challenges requires a mix of training, technology, and governance. Many new covered entities accelerate their learning curve by partnering with dedicated 340B advisors who can help design the right operating model, choose vendors, and structure data flows.

How Cooper Strategy Supports New Covered Entities

Although this guide is vendor-agnostic in its conceptual explanations, it’s worth briefly outlining how a strategic partner like Cooper Strategy typically supports new covered entities:

Program design and launch – from confirming eligibility and building policies to selecting TPAs and designing contract pharmacy networks.
340B referral capture – integrating referral and claims data to ensure all legitimate 340B opportunities are identified.
340B audits and compliance – performing independent reviews, mock HRSA audits, and remediation planning.
New patient procurement – helping entities build partnerships (e.g., with employers or payers) that channel appropriate patients into their 340B-enabled care pathways.
Corporate expense reduction – analyzing purchasing and utilization data to optimize drug spend and eliminate leakage.

If you’d like to explore any of these support areas, you can reach out to Cooper Strategy here.

Conclusion: Succeeding with 340B as a New Covered Entity

Entering the 340B Drug Pricing Program is a major strategic milestone. Done well, it can:

Stabilize your finances
Expand access to care
Enable new programs and services
Deepen your organization’s impact on vulnerable communities

But 340B is not “set it and forget it.” It demands ongoing attention, strong governance, reliable technology, and a culture of compliance.

As a new covered entity, your priorities should be:

Understand the rules and your responsibilities.
Design a thoughtful operational model for purchasing, dispensing, and data management.
Invest early in compliance and audit readiness.
Continuously optimize through referral capture, new patient procurement, and expense reduction strategies.

When those elements are in place, 340B becomes more than a discount – it becomes a strategic engine for mission growth.

If you’re ready to build or refine your 340B strategy and want a partner that lives at the intersection of finance, compliance, and mission, contact Cooper Strategy today. Our team can help you turn 340B potential into measurable, sustainable impact for your patients and your organization.

Ultimate Guide to the 340B Program for New Covered Entities