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340B compliance FAQ

How do 340B duplicate discounts and Medicaid exclusion files work?

Short answer

A duplicate discount happens when a manufacturer sells a drug at the 340B price and then also pays a Medicaid rebate on the same unit. The 340B statute bars covered entities from setting that up. For Medicaid fee-for-service, HRSA’s Medicaid Exclusion File (MEF) is the official mechanism: a site that bills Medicaid with 340B drugs (carve-in) lists its NPI or Medicaid number by state, and states leave those claims out of their rebate requests. A site that carves out buys non-340B drugs for those patients. The MEF doesn’t cover Medicaid managed care, so managed care claims depend on state rules and claim-level 340B identifiers.[1][3][4][5]

Talk to us about Medicaid carve-outs See the rules by channel
The mechanics

How one drug can get discounted twice

  1. Step 1

    The covered entity buys at the 340B price

    Manufacturers must offer covered outpatient drugs to covered entities at or below the 340B ceiling price.[1]

  2. Step 2

    The drug is dispensed to a Medicaid patient

    The pharmacy or clinic bills the state (fee-for-service) or a Medicaid managed care plan for the drug.[7]

  3. Step 3

    The state invoices manufacturers for rebates

    States report units paid each quarter to manufacturers, including units paid by Medicaid managed care organizations, and collect rebates on them.[2]

  4. Step 4

    If the 340B unit isn’t excluded, the discount doubles

    Federal law says manufacturers aren’t required to give both the 340B price and a Medicaid rebate on the same drug, so 340B units have to come out of the rebate request.[1][2][3]

Before 2010, Medicaid rebates applied only to fee-for-service. The Affordable Care Act extended rebates to drugs paid by Medicaid managed care organizations starting March 23, 2010, while exempting managed care drugs that are subject to 340B discounts. That’s why managed care is now the harder half of the problem.[2][4]

Carve-in vs carve-out

Who prevents the duplicate discount, by channel

Each covered entity site tells HRSA whether it carves Medicaid fee-for-service in or out. That one decision doesn’t settle every channel, so the rule depends on where the drug is dispensed and who pays for it.[3][4]

SettingMain safeguardWhat the rule says
Medicaid fee-for-service, entity-owned pharmacy or clinicHRSA Medicaid Exclusion FileCarve-in sites list each Medicaid state and billing number (NPI, state Medicaid number or both). Every drug billed to Medicaid under a listed number must be 340B; under an unlisted number, none can be.[3][6]
Medicaid fee-for-service, contract pharmacyCarve-out by defaultContract pharmacies may not use 340B drugs for Medicaid fee-for-service patients unless the covered entity, the pharmacy and the state Medicaid agency have an arrangement that HRSA reviews and approves.[8][9][10]
Medicaid managed care (any dispensing channel)State and plan rules; claim-level identifiersThe MEF doesn’t apply. Unless the state collects this data from covered entities directly, MCO contracts must require plans to exclude 340B utilization from the data they send the state for rebates. Many states also require 340B flags on the claim.[4][5][7]
Physician-administered drugs billed to MedicaidUD modifier (where the state requires it)States can tell covered entities to add the UD modifier next to the HCPCS code and NDC so the 340B drug is excluded from rebate invoicing.[7][16]

If some clinics in a covered entity are 340B-eligible and others aren’t, and the entity wants to carve in, HRSA says the eligible clinics need their own Medicaid provider number (or another arrangement with the state). A carved-in site that can’t use a 340B drug in a particular case must have a way to tell the state.[4]

Setting up contract pharmacies? See how contract pharmacy setup works with a 340B TPA.

The MEF runs on a quarterly clock

You can ask HRSA to change your MEF listing at any time, but the change only takes effect on the first day of the next quarter, and only if OPA approves it before the quarterly snapshot. HRSA generally doesn’t change a published MEF retroactively, so time your Medicaid billing change to the quarter start.[3][6]

Quarter startsChange must be approved before the snapshot on
January 1 (Q1)December 16, 12:01 a.m. ET
April 1 (Q2)March 16, 12:01 a.m. ET
July 1 (Q3)June 16, 12:01 a.m. ET
October 1 (Q4)September 16, 12:01 a.m. ET
  • The next snapshot is December 16, 2026, for the quarter starting January 1, 2027. HRSA encourages entities to submit well before the snapshot so there’s time to approve the request.[3]
  • The “start date” and “term date” columns on the MEF show 340B participation dates, not when a carve-in began.[3]
  • Covered entities attest to the accuracy of their MEF information at annual recertification.[4]
Medicaid managed care

Where the MEF stops

What federal guidance says

  • The MEF applies only to fee-for-service, and HRSA hasn’t set a managed care duplicate discount policy. It encourages covered entities to work out strategies with their state.[4][5]
  • States must put a clause in managed care contracts (42 CFR 438.3(s)(3)) requiring plans to exclude 340B drugs from the utilization data used for rebates, unless the state collects that data from covered entities directly.[7]
  • CMS’s 2020 best practices: Medicaid-only BIN/PCN on plan cards, claim-level 340B identifiers, and giving manufacturers claims-level data with rebate invoices, which otherwise roll up to the 11-digit NDC.[7]

What the watchdogs found

  • HHS OIG (2016): 30 of 35 states used provider-level methods, such as the MEF, for managed care drugs. Those can misclassify individual claims. Claim-level methods were more accurate.[14]
  • GAO (2020): unlike fee-for-service, HRSA doesn’t require covered entities to fix or repay managed care duplicate discounts. HHS disagreed with GAO’s two recommendations to HRSA.[15]
  • GAO’s latest status update says some states still use the MEF for managed care, even though it’s only meant for fee-for-service.[15]

Two state examples

Louisiana uses the MEF for both fee-for-service and managed care, requires the same carve decision for both, requires contract pharmacies to carve out all Medicaid, and has denied 340B pharmacy claims without the 20 and 08 indicators since June 1, 2020.[16] Nevada has required the same two indicators on fee-for-service and managed care 340B pharmacy claims since July 1, 2022.[17]

Claim-level identifiers

The codes that mark a claim as 340B

Requirements vary by state and payer. Use these only where the payer asks for them.[7][12]

420-DK = 20
NCPDP pharmacy claim, Submission Clarification Code

Before dispensing, the pharmacy determined the product was bought under 340B.[7][12]

423-DN = 08
NCPDP pharmacy claim, Basis of Cost Determination

The ingredient cost submitted is the 340B price. Used only where the payer requires it.[7][12]

D17-K8 = AA
NCPDP Telecommunication Standard F2 and later

Replaces the 420-DK value of 20 in newer versions, with the same meaning.[12]

UD modifier
Medical claims (837P, 837I, CMS-1500, UB-04)

Marks a physician-administered drug as bought under 340B, where the state Medicaid program uses it.[7][16]

TB modifier
Medicare Part B claim lines

Since January 1, 2025, all 340B covered entities report TB (JG is discontinued). On dual-eligible crossover claims, CMS told states to treat these modifiers as 340B.[7][13]

Medicaid-only BIN/PCN
Patient’s Medicaid managed care card

Not a 340B flag. It tells the pharmacy the patient is Medicaid managed care, so a carve-out decision can be applied at the counter.[7][16]

Audits and repayment to manufacturers

  1. 1

    Audit fieldwork

    HRSA auditors check internal controls that prevent duplicate discounts, including MEF designations and the accuracy of the OPAIS record. Manufacturers can also audit covered entities.[1][11]

  2. 2

    Finding

    If the MEF doesn’t match actual billing, the covered entity could be found in violation and may have to repay manufacturers an amount equal to the 340B price reduction.[1][4]

  3. 3

    Respond in 30 days

    After the final report, the entity has 30 calendar days to agree or send a written disagreement with documentation.[11]

  4. 4

    Corrective action plan in 60 days

    An entity that agrees submits a corrective action plan within 60 calendar days. HRSA directs it to work with states and manufacturers to find out whether a duplicate discount actually occurred.[4][11]

  5. 5

    Settle within six months

    HRSA expects the plan to be carried out and manufacturer settlements finished within six months of approval. The entity has to identify and contact each affected manufacturer.[11]

If you find a duplicate discount yourself, HRSA’s contract pharmacy guidance says to take immediate remedial action and notify HRSA. Its self-disclosure address is 340bselfdisclosure@hrsa.gov.[8][10]

The TPA’s part

How a 340B TPA handles Medicaid claims

The covered entity stays responsible for preventing duplicate discounts. A TPA applies the entity’s decisions to every claim and keeps the records.[8][10] What a 340B TPA does

  1. 1

    Load your Medicaid decisions

    Carve-in or carve-out by site, by state and by billing number, matched to what you’ve listed in OPAIS for the quarter.[3][6]

  2. 2

    Identify Medicaid on every claim

    Use payer identifiers (BIN, PCN and group) to separate Medicaid fee-for-service and managed care from a plan’s commercial and Medicare lines.[7][16]

  3. 3

    Keep carved-out Medicaid out of 340B

    At contract pharmacies without an approved arrangement, Medicaid prescriptions don’t qualify for 340B replenishment.[8][9]

  4. 4

    Follow each state’s claim rules

    Where a state requires 340B flags such as 420-DK = 20 and 423-DN = 08, carved-in claims must carry them, or the claim may deny.[16][17]

  5. 5

    Reconcile and report

    HRSA expects annual independent audits of contract pharmacies and wants every effort to avoid duplicate discounts well documented, so keep claim-level records an auditor can follow.[8][10]

In mixed-use hospital areas, Medicaid status is also one of the checks before a unit accumulates as 340B. See 340B accumulators and split billing, explained.

How Aventi helps

Medicaid controls built into your TPA

Independent TPA. Aventi runs contract pharmacy and split billing for 300 covered entities, 24 of them hospitals.

Medicaid checks on every claim. We check each prescription against your patients, prescribers, locations and Medicaid status, and monitor for duplicate discounts.

Ready for 2027. The rebate module is Included for Aventi TPA clients. Learn about the 340B rebate model, or compare 340B TPAs.

Talk to us about Medicaid carve-outs
FAQ

Duplicate discounts and the MEF: common questions

It’s when a manufacturer gives a covered entity the 340B price on a drug and then also pays a state Medicaid rebate on the same drug. The 340B statute bars a covered entity from billing Medicaid for a 340B drug that is also subject to a Medicaid rebate.[1][3]

It’s the quarterly list, published in 340B OPAIS, of covered entity sites that use 340B drugs for Medicaid fee-for-service patients, with the state and the NPI or Medicaid number they bill under. States and manufacturers use it to keep those claims out of rebate requests. HRSA established it in 1993.[3][4][6]

Carve-in means you use 340B drugs for Medicaid patients and list the billing numbers on the MEF. Carve-out means you buy drugs outside 340B for Medicaid patients and don’t list those numbers. The choice is all-or-nothing per billing number: everything billed to Medicaid under a carve-in number must be 340B.[3][6]

No. HRSA says the MEF applies only to fee-for-service, and it hasn’t set a policy for managed care duplicate discounts. CMS requires managed care contracts to make plans exclude 340B drugs from rebate data, and states set their own rules, often with claim-level identifiers.[4][5][7]

Not for Medicaid fee-for-service unless the covered entity, the contract pharmacy and the state Medicaid agency have an arrangement to prevent duplicate discounts that HRSA reviews and approves. Some states, such as Louisiana, require contract pharmacies to carve out managed care Medicaid too.[8][9][16]How contract pharmacy setup works with a 340B TPA

On the first day of the next quarter, and only if HRSA approves the change before its snapshot at 12:01 a.m. ET on the 16th day of the month before the quarter starts. HRSA generally doesn’t make retroactive changes.[3][6]

In the NCPDP standard, Submission Clarification Code 420-DK value 20 marks a claim as 340B, and Basis of Cost Determination 423-DN value 08 says the cost submitted is the 340B price. States such as Louisiana and Nevada require both on 340B Medicaid pharmacy claims.[12][16][17]

The covered entity may have to repay affected manufacturers an amount equal to the 340B discount. It submits a corrective action plan, contacts each affected manufacturer, and is expected to finish settlements within six months of plan approval.[1][4][11]

The rebate model changes how 340B pricing is delivered for drugs in the pilot. It doesn’t change the statute’s duplicate discount ban, so your Medicaid carve decisions and claim data still matter. Aventi’s rebate module is Included for Aventi TPA clients.[1]340B rebate model

Related pages

Sources

  1. 42 U.S.C. § 256b(a)(5), Requirements for covered entities: duplicate discounts, auditing and sanctions (Cornell LII) — https://www.law.cornell.edu/uscode/text/42/256b
  2. 42 U.S.C. § 1396r-8(b)(1)(A) and (j)(1), Medicaid drug rebates, managed care and the 340B exemption (Cornell LII) — https://www.law.cornell.edu/uscode/text/42/1396r-8
  3. HRSA, Duplicate Discount Prohibition (Medicaid Exclusion File program requirements) — https://www.hrsa.gov/opa/program-requirements/medicaid-exclusion
  4. HRSA, 340B Drug Pricing Program Notice Release No. 2014-1, Clarification on Use of the Medicaid Exclusion File (Dec. 12, 2014) — https://www.hrsa.gov/sites/default/files/hrsa/opa/clarification-medicaid-exclusion.pdf
  5. HRSA FAQ, Are stakeholders able to use the Medicaid Exclusion File (MEF) to determine whether 340B drugs are billed under Medicaid managed care? — https://www.hrsa.gov/about/faqs/are-stakeholders-able-use-medicaid-exclusion-file-mef-determine-whether-340b-drugs-are-billed-under
  6. 340B OPAIS, Download Medicaid Exclusion File — https://340bopais.hrsa.gov/ReportsMedicaidExclusionFile
  7. CMS, CMCS Informational Bulletin, Best Practices for Avoiding 340B Duplicate Discounts in Medicaid (Jan. 8, 2020) — https://www.medicaid.gov/federal-policy-guidance/downloads/cib010820.pdf
  8. HRSA, Contract Pharmacy Services — https://www.hrsa.gov/opa/implementation-contract
  9. HRSA FAQ, May 340B drugs be used for Medicaid fee-for-service patients as part of a 340B contract pharmacy? — https://www.hrsa.gov/about/faqs/may-340b-drugs-be-used-medicaid-fee-service-patients-part-340b-contract-pharmacy
  10. Federal Register, Notice Regarding 340B Drug Pricing Program, Contract Pharmacy Services, 75 FR 10272 (Mar. 5, 2010) — https://www.federalregister.gov/documents/2010/03/05/2010-4755/notice-regarding-340b-drug-pricing-program-contract-pharmacy-services
  11. HRSA, 340B Program Integrity (covered entity audit process, corrective action plans and repayment) — https://www.hrsa.gov/opa/program-integrity
  12. NCPDP, 340B Information Exchange Reference Guide — https://www.ncpdp.org/NCPDP/media/pdf/340B_Information_Exchange_Reference_Guide.pdf
  13. CMS, MLN4800856, Medicare Part B Inflation Rebate Guidance: Use of the 340B Modifier (Jan. 2026) — https://www.cms.gov/files/document/mln4800856-medicare-part-b-inflation-rebate-guidance-use-340b-modifier.pdf
  14. HHS OIG, State Efforts to Exclude 340B Drugs from Medicaid Managed Care Rebates, OEI-05-14-00430 (June 2016) — https://oig.hhs.gov/reports/all/2016/state-efforts-to-exclude-340b-drugs-from-medicaid-managed-care-rebates/
  15. GAO-20-212, 340B Drug Discount Program: Oversight of the Intersection with the Medicaid Drug Rebate Program Needs Improvement (Jan. 2020; recommendation status updates) — https://www.gao.gov/products/gao-20-212
  16. Louisiana Department of Health, Informational Bulletin 16-9, 340B Policy Clarification (revised Apr. 15, 2024) — https://ldh.la.gov/assets/docs/BayouHealth/Informational_Bulletins/16-09/IB16-09_revised_04.15.24.pdf
  17. Nevada Medicaid, Web Announcement 2825, New Electronic Claim Billing Instructions for Pharmacy POS 340B Claims (July 1, 2022) — https://www.medicaid.nv.gov/Downloads/provider/web_announcement_2825_20220701.pdf

Last updated November 12, 2026. This page is general information, not legal advice. State Medicaid rules change, so check your state’s current 340B billing guidance.