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In early March 2026, a federal district court issued a significant ruling in Albany Med Health System v. HRSA, challenging long-standing assumptions about when hospital child sites become eligible to participate in the 340B program.
The decision has prompted substantial discussion across the 340B industry, particularly around whether HRSA can require OPAIS registration before participation. But while the ruling may appear straightforward, its practical implications are far more nuanced.
Executive Summary
What happened:
A federal court vacated HRSA’s policy requiring hospital child sites to appear on the Medicare cost report and be registered in OPAIS before accessing 340B pricing.
Why it matters:
The court determined that OPAIS registration is not a statutory condition of eligibility under the 340B program.
What remains unclear:
The court did not define when a child site becomes part of a covered entity – leaving a key compliance question unresolved.
Virtue’s recommendation:
Proceed deliberately. Covered entities should prioritize strengthening documentation of site eligibility and oversight decisions rather than making immediate operational changes, especially considering the ruling may still be subject to appeal or further legal or regulatory developments.
The Core Issue
For decades, hospitals have typically followed a two-step process before using 340B drugs at a new off-site department:
- The child site must appear on the hospital’s Medicare cost report.
- The site must be registered in HRSA’s OPAIS database.
Because Medicare cost reports are submitted annually and OPAIS registrations occur quarterly, 340B eligibility is often delayed for months, or even more than a year, after a site begins operations.
During the COVID-19 public health emergency, HRSA temporarily allowed hospitals to use 340B drugs at new sites before they were included in Medicare cost reports.
In October 2023, HRSA announced that it would end this flexibility and return to the traditional registration requirement. That announcement prompted several hospitals to challenge the policy in federal court before it could be fully implemented.
What the Court Decided
The court ruled in favor of the hospitals, vacating HRSA’s reinstatement of the registration requirement. The reasoning was straightforward:
- The 340B statute defines eligibility for covered entities.
- The statute lists specific program requirements.
- Registration with HRSA is not among them.
As a result, HRSA cannot impose registration as a prerequisite to eligibility.
Importantly, the ruling does not eliminate OPAIS registration. HRSA retains the ability to:
- maintain the OPAIS database,
- collect information from covered entities,
- verify eligibility, and
- conduct program audits.
The Critical Detail Many Are Missing
Much of the industry discussion has focused on whether hospitals can now use 340B drugs before OPAIS registration.
But the court left an important question unanswered:
When does a child site become part of the covered entity?
By declining to define that point, the decision shifts the compliance focus away from registration timing – and toward whether an organization can clearly demonstrate that a site legitimately qualifies as part of the covered entity.
In future HRSA audits, documentation supporting provider-based relationships, operational integration, and patient eligibility will become increasingly important.
Why This Matters
Historically, many organizations delayed 340B utilization at these locations until registration was complete. This ruling has direct implications for common expansion scenarios, including:
- opening new outpatient clinics,
- acquiring physician practices,
- expanding infusion centers,
- adding specialty outpatient services.
If the ruling ultimately stands, eligibility may depend more on organizational structure and patient eligibility than on the timing of administrative registration.
For example, a hospital opening a new outpatient clinic in January may previously have waited for cost report inclusion and OPAIS registration – potentially delaying 340B use by 6–12 months.
Under this ruling, the key question is whether the clinic can already be considered part of the covered entity based on its structure and integration.
Near-Term Considerations for Covered Entities
Covered entities may want to focus on several practical steps:
- Strengthen documentation of site eligibility. Maintain clear evidence supporting how new locations qualify as part of the covered entity.
- Ensure provider-based relationships are well documented. If eligibility questions arise, provider-based integration may become a critical factor.
- Evaluate oversight frameworks. Leadership should understand how new sites are reviewed, approved, and monitored.
- Avoid operational changes without a clear risk assessment. Organizations considering earlier 340B utilization should carefully assess compliance exposure first.
- Monitor regulatory developments. Additional guidance from HRSA or appellate courts could affect how this decision is applied.
Final Thought
While the decision is significant, it is not necessarily the final word. Because of this uncertainty, organizations should be cautious about making immediate operational changes.
The more important question for leadership is not simply, “Can we start using 340B sooner?”
“If this decision is reviewed later, can we clearly defend how we determined site eligibility?”
That distinction matters during audits and regulatory reviews.
The Albany Med decision reinforces a core reality of the 340B program:
Compliance risk rarely comes from obvious violations. It often develops gradually through unchallenged operational assumptions.
In this case, the risk is not simply acting too early. It is acting without the ability to clearly defend eligibility decisions later. Strong oversight frameworks and well-documented decision-making remain the most effective defense.
How Virtue 340B Supports Covered Entities
Virtue 340B provides independent oversight to help healthcare organizations identify hidden exposure and strengthen program governance through:
- Independent 340B audits
- Mock HRSA audit simulations
- Continuous compliance monitoring
- Governance and oversight reviews
Our focus is on helping leadership see risk early, strengthen oversight structures, and ensure program decisions remain defensible over time.
