Covered outpatient drugs (CODs) are the specific drug products subject to 340B pricing requirements. A drug qualifies as a covered outpatient drug if it is covered under the Medicaid Drug Rebate Program and the manufacturer participates in that program. Manufacturers who participate in Medicaid must also offer 340B pricing on their CODs to covered entities.
CODs include most FDA-approved prescription drugs and biological products dispensed in outpatient settings. Not all drugs are CODs—certain categories such as vaccines (in most cases), over-the-counter drugs, and drugs not covered under Medicaid may not qualify. Orphan drugs designated for rare diseases are excluded from 340B pricing for certain covered entity types (rural referral centers, sole community hospitals, critical access hospitals, and free-standing cancer hospitals).
Covered entities must verify that drugs they are purchasing at 340B prices are in fact CODs. Purchasing non-covered drugs at 340B prices, or purchasing CODs for ineligible patients or through non-compliant channels, creates compliance risk.
Frequently Asked Questions
Are all prescription drugs covered under 340B?
No. Only drugs that qualify as covered outpatient drugs (CODs) under the Medicaid Drug Rebate Program are subject to 340B pricing requirements. Vaccines, OTC drugs, and drugs from manufacturers not participating in Medicaid are generally not CODs.
What is the orphan drug exclusion?
Certain hospital-type covered entities (RRCs, SCHs, CAHs, and CANs) are excluded from receiving 340B pricing on drugs that have been designated as orphan drugs by the FDA for rare diseases. FQHCs and Ryan White grantees are not subject to this exclusion.
How does a covered entity verify that a drug is a COD?
Covered entities can verify COD status by checking the labeler code in OPAIS against the Medicaid Drug Rebate Program database. If the manufacturer participates in Medicaid and the drug is an outpatient drug, it is generally a COD.
Why Covered Outpatient Drug (COD) Matters
Understanding which drugs are covered outpatient drugs is foundational to running a compliant 340B program. Purchasing a drug at 340B pricing when it is not a COD—or when the manufacturer does not participate in Medicaid—can create compliance issues. Orphan drug exclusions add another layer of complexity for hospital-type covered entities.
How Virtue 340B Uses It
Virtue 340B evaluates covered outpatient drug determinations as part of our audit and consulting work, particularly in relation to orphan drug exclusions for hospital-type entities and manufacturer restrictions that affect which drugs can be purchased at 340B prices.
