340B program basics for hospital billing teams

What is the 340B program and who runs it?

The 340B program comes from section 340B of the Public Health Service Act (42 U.S.C. 256b). It requires an agreement between the Secretary of Health and Human Services and each manufacturer of covered outpatient drugs, under which covered entities pay no more than a ceiling price. The Health Resources and Services Administration (HRSA) runs it through its Office of Pharmacy Affairs (42 CFR 10.3).

Section 340B(a)(1) sets the ceiling price at the drug's average manufacturer price under Medicaid in the prior calendar quarter, reduced by a rebate percentage, and requires manufacturers to report ceiling prices to the Secretary quarterly. The program is a purchasing rule, not a billing rule. Billing teams meet it through Medicare modifiers, Medicaid duplicate discount rules and audit exposure.

Which hospitals are 340B covered entities?

Section 340B(a)(4) lists the covered entities. Besides federally qualified health centers and several grant-funded clinics, it names several hospital types. Hospital eligibility turns on ownership or a government contract, a disproportionate share adjustment percentage, and in one case a bar on group purchasing.

For cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, section 340B(e) takes drugs designated for a rare disease or condition out of the definition of a covered outpatient drug. See critical access hospital billing for how those hospitals are paid.

What do modifiers JG and TB mean on a claim?

Both modifiers flag a separately payable drug or biological that a hospital bought under the 340B program. The JG descriptor reads 'drug or biological acquired with 340B drug pricing program discount, reported for informational purposes,' and TB carries the same wording since 2025, when 'for select entities' was dropped. CMS uses them for one purpose: to identify and remove 340B units from the Part B inflation rebate calculation, which section 1847A(i) of the Social Security Act excludes.

CMS finalized the single-modifier change in the CY 2024 outpatient rule (88 FR 81791 through 81792) and restated it in the CY 2026 rule (90 FR 53761 through 53762). The modifier goes on the same claim line as the drug's HCPCS code (Claims Processing Manual, chapter 4, sections 20.6.16 and 20.6.17). Confirm with your MAC before you change how a non-hospital entity reports.

How does 340B affect Medicare drug payment?

It no longer changes the drug rate. From January 1, 2018, Medicare paid most hospitals' 340B-acquired drugs at average sales price (ASP) minus 22.5 percent. The Supreme Court held in American Hospital Association v. Becerra in June 2022 that CMS could not vary drug payment by hospital group without a survey of acquisition costs. Since January 1, 2023, a modifier on the claim triggers no reduction, and 340B drugs are paid at the same statutory default rate as other drugs, generally ASP plus 6 percent (Claims Processing Manual, chapter 4, section 20.6.16).

The remedy for the 2018 to 2022 cuts is where hospitals still feel it. For CY 2026, CMS applies a 0.5 percent reduction to the OPPS conversion factor for non-drug items and services at the hospitals listed in Addendum R, excluding hospitals that enrolled in Medicare after January 1, 2018. CMS estimated that offset at $275 million for the year (90 FR 53448). CMS proposed raising the offset to 2 percent and instead delayed any increase by a year.

What is duplicate discount prevention?

A duplicate discount happens when a drug bought at the 340B price is also claimed for a Medicaid manufacturer rebate. Section 340B(a)(5)(A) bars a covered entity from requesting Medicaid payment for a drug subject to a 340B agreement if the drug is also subject to a rebate under section 1927, and tells the Secretary to set up a mechanism to make sure entities comply.

Two companion rules sit beside it. Section 340B(a)(5)(B) bars reselling or transferring a drug to anyone who is not a patient of the entity, which is diversion. Section 340B(a)(5)(C) lets the Secretary and the manufacturer audit the entity's records that directly pertain to compliance. A finding of violation after audit and a hearing makes the entity liable to the manufacturer for the price reduction (340B(a)(5)(D)).

How should a billing team keep 340B claims separate?

The billing team does not decide eligibility, but its data decides whether a unit can be traced. HRSA's 1996 patient definition (61 FR 55156) says a person is a patient of the entity only if the entity keeps records of the person's care, a professional it employs or contracts with provides the care so that responsibility stays with the entity, and the service fits the entity's grant or look-alike status, a test disproportionate share hospitals are exempt from. A person whose only service is a drug dispensed for self-administration or home use is not a patient.

• Put TB on every separately payable 340B-acquired drug line, and not on drugs bought on other terms.
• Keep the purchase record that ties each billed unit to its acquisition account, because a covered entity must let the Secretary and the manufacturer audit those records.
• Follow the state Medicaid agency's instructions for 340B drugs, since section 340B(d)(2)(B)(iii) calls for guidance on billing State Medicaid agencies in a way that avoids duplicate discounts.
• Treat contract pharmacy as a separate HRSA topic: its guidance (75 FR 10272, effective April 5, 2010) lets entities use contract pharmacies under written agreements, and says that does not lessen the entity's duty to comply.

Eligibility and diversion questions belong with your 340B program lead and counsel. This page describes billing effects only.

What happens when a 340B problem is found?

Disputes follow 42 CFR part 10. A covered entity or manufacturer must file an administrative dispute resolution claim in writing with the Office of Pharmacy Affairs within 3 years of the alleged violation, absent extenuating circumstances (42 CFR 10.21(b)). Medicare claim errors follow the normal path: a redetermination request within 120 days of receiving the notice, as the appeal levels page sets out. If a review shows Medicare was overpaid, the 60-day overpayment rule applies. For hospital rules next to this one, see provider-based billing and OPPS and APCs. If your 340B modifiers are costing you claims, our billing and coding audits team can help.