How does a hospital qualify for 340B?

The six hospital types

The 340B Drug Pricing Program is set out in section 340B of the Public Health Service Act (42 U.S.C. 256b). It lets eligible hospitals and other covered entities buy covered outpatient drugs at limited prices.

HRSA lists six hospital types that can take part: disproportionate share hospitals (DSH), sole community hospitals (SCH), rural referral centers (RRC), critical access hospitals (CAH), children's hospitals (PEDS) and free-standing cancer hospitals (CAN). A hospital must choose one type and meet that type's definition when it registers.

The percentage tests

For a disproportionate share hospital, the statute requires a disproportionate share adjustment percentage "greater than 11.75 percent", or that the hospital "was described in section 1886(d)(5)(F)(i)(II)" of the Social Security Act. That second route is for an urban hospital with 100 or more beds whose net inpatient revenues from State and local government sources for indigent care, not counting Medicare and Medicaid revenues, exceed 30 percent of its total; the Medicare statute sets the adjustment percentage for such a hospital at 35 percent.

Children's hospitals and free-standing cancer hospitals are covered by a separate clause that requires them to meet the same requirements as a disproportionate share hospital, including the percentage requirement: the statute describes them as hospitals "that would meet the requirements of subparagraph (L)".

Rural referral centers and sole community hospitals need a percentage "equal to or greater than 8 percent". Critical access hospitals have no percentage test.

HRSA's registration page shows the same split: "> 11.75%" for disproportionate share, free-standing cancer and children's hospitals, and "≥ 8%" for sole community hospitals and rural referral centers. The first comparison is strict and the second is inclusive, so a hospital at exactly 11.75 percent does not pass that comparison, and one at exactly 8.00 percent does.

Where the percentage comes from

The test uses the hospital's disproportionate share adjustment percentage, which the statute says is "as determined under section 1886(d)(5)(F)" of the Social Security Act: the Medicare DSH adjustment. The Medicare regulation starts from a disproportionate patient percentage, found by adding two computations, one for Medicare Part A and SSI patient days and one for Medicaid patient days (42 CFR 412.106(b)); the statute turns that into the adjustment percentage by formula. Our guide to the Medicare DSH threshold walks through them.

For 340B registration, HRSA's instructions list the "latest filed Medicare cost report" among the documents to have on hand, with Worksheet E, Part A, line 33, and say that "the 340B Program uses the CMS Hospital Cost Report Information System (HCRIS) data to verify eligibility."

Which cost report period counts

The statute ties the test to "the most recent cost reporting period that ended before the calendar quarter involved". The percentage that counts for a quarter is the one for the latest cost reporting period that had already ended when that quarter began.

At registration, HRSA's instructions ask the hospital to have its "latest filed Medicare cost report" ready, and say that the program uses Medicare cost report data from CMS to verify eligibility.

The ownership requirement

Every type must also meet the statute's ownership test. A hospital qualifies if it is "owned or operated by a unit of State or local government", if it is a public or private non-profit corporation "formally granted governmental powers" by a State or local government, or if it is a private non-profit hospital with a "contract with a State or local government" to provide health care services to low-income people who are not entitled to Medicare Part A benefits or eligible for assistance under the state Medicaid plan.

HRSA asks for documents showing the route the hospital relies on, such as the law that created the hospital, its charter or bylaws, IRS documents, or the contract, and says it may ask for them again when the hospital recertifies each year.

What a participating hospital keeps doing

HRSA's program requirements ask each covered entity to keep its records in the 340B Office of Pharmacy Affairs Information System accurate and up to date, to register all outpatient facilities and contract pharmacies, to re-certify eligibility every year, to prevent diversion to ineligible patients and duplicate discounts, and to keep auditable records.

Two prohibitions depend on the hospital type. Disproportionate share, free-standing cancer and children's hospitals must not obtain covered outpatient drugs through a group purchasing organization. Free-standing cancer hospitals, rural referral centers, sole community hospitals and critical access hospitals are subject to the orphan drug exclusion.

Registering, and changing type

A hospital registers in HRSA's 340B Office of Pharmacy Affairs Information System during one of the quarterly registration periods, and can participate only after HRSA has approved its qualifications.

A hospital that wants to change type should contact the 340B Prime Vendor Program as soon as it considers it. Changing type means re-registering the main hospital, all child sites and contract pharmacies, and the hospital must stay eligible during the move.

HRSA hospital registration page, read October 24, 2026 (HRSA lists its last review as September 2022); statute text as published in 42 U.S.C. 256b

Frequently asked questions

What does 340B stand for?

It refers to section 340B of the Public Health Service Act, the provision (42 U.S.C. 256b) that limits the prices manufacturers can charge covered entities for covered outpatient drugs.

Is a hospital at exactly 11.75 percent eligible?

Not on the percentage test. For disproportionate share, free-standing cancer and children's hospitals the statute requires a percentage greater than 11.75 percent (a disproportionate share hospital can also qualify under the separate indigent-care route described above). For rural referral centers and sole community hospitals, 8 percent is enough.

Does a critical access hospital need a DSH percentage?

No. The statute sets no percentage test for critical access hospitals. The ownership requirement still applies, and HRSA lists critical access hospitals under the orphan drug exclusion.

Can a hospital register as more than one type?

HRSA says a hospital must choose one type to participate and must meet that type's definition when it registers.

Who decides whether a hospital is eligible?

HRSA decides. It verifies eligibility using Medicare cost report data and the documents the hospital uploads, and a hospital can participate only after HRSA has approved its registration. Nothing on this page is an eligibility determination.

Where is the percentage on the cost report?

HRSA lists Worksheet E, Part A, line 33 of the latest filed Medicare cost report among the documents a registering hospital should have on hand.

Sources

• 42 U.S.C. 256b: Limitation on prices of drugs purchased by covered entitiesThe hospital types, the 11.75 and 8 percent tests, the ownership requirement, the timing wording, and the group purchasing and orphan drug provisions
• HRSA: How Hospitals Register for the 340B ProgramThe six hospital types, HRSA's statement of the tests, the documents and cost report worksheets for registration, changing type, and the prohibitions by type
• HRSA: 340B Program RequirementsAnnual recertification, diversion and duplicate discount prevention, auditable records, and the group purchasing organization prohibition
• 42 CFR 412.106: Special treatment: Hospitals that serve a disproportionate share of low-income patientsHow the Medicare DSH percentage is built from two fractions

This guide is general information drawn from the sources above, last reviewed October 24, 2026. It is not legal, reimbursement, or filing advice. Rules, figures, and file listings change; confirm against the source before relying on them.

Related

• The 340B status screen→
• How the Medicare DSH 15% threshold works→