The 340B Drug Pricing Program and Medicaid Drug Rebate Program: How They Interact

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May 2018

The Medicaid Drug Rebate Program and the 340B Drug Pricing Program both require drug manufacturers to provide significant discounts on their products. Under Medicaid, these discounts are provided in the form of rebates on covered outpatient drugs paid for by state Medicaid programs. Under 340B, manufacturers also are required to sell drugs to participating providers at a significantly reduced price but states may not claim a Medicaid rebate for a drug that was purchased under 340B. This is known as the prohibition on duplicate discounts.

Preventing duplicate discounts is the main issue confronting state Medicaid programs with regard to 340B. This issue brief provides background on the history and mechanics of the Medicaid Drug Rebate Program and 340B, and describes the issues that state Medicaid programs face in coordinating obligations under the two programs. The brief also discusses two additional issues related to 340B: (1) whether covered entities may be using the 340B program to generate revenue, and (2) concerns about whether federal oversight is adequate to monitor the rapidly growing program.

For more information on how Medicaid pays for prescription drugs, see the issue brief on Medicaid Payment for Outpatient Prescription Drugs.

Publication Type: Issue Briefs

Tags: federally qualified health centers (FQHCs), fee for service, hospitals, managed care, payment, prescription drugs, spending