340B and Medicaid: Scope, Vulnerabilities and New Survey Findings

Health Update

Editor’s Note: In a recent webinar, Manatt explained the complexities of the 340B program, which requires drug manufacturers to provide outpatient drugs to eligible healthcare entities at sharply reduced prices. The webinar also reviewed key findings from Manatt’s 50-state survey on the interplay between the 340B and Medicaid programs. In part one of our article summarizing the webinar, published in our January “Health Update,” we reviewed the 340B and Medicaid Drug Rebate Programs, as well as examined the interplay between 340B and Medicaid. Part two of our summary, below, shares information on the 340B program’s growing scope, insights into two of 340B’s long-standing vulnerabilities, key findings from our 50-state 340B survey and a look ahead to what’s next. Click here to view the program free on demand (and earn CLE). Click here to download a free copy of the presentation and a new infographic highlighting key survey findings.

The 340B Program’s Growing Scope

The 340B program has grown significantly in scope. According to the Health Resources and Services Administration (HRSA), as of January 1, 2018, the 340B program included 12,823 providers and 29,663 associated sites, for a total of 42,486 registered sites. In terms of volume, HRSA reports that in 2016, 340B sales amounted to approximately $16 billion or about 3.6% of the total U.S. drug market. On the contract pharmacy side, according to a report from the General Accounting Office (GAO), there were approximately 20,000 340B pharmacies in 2017.

Duplicate Discounts

The 340B statute provides that a drug may be subject to both a Medicaid rebate and a 340B discount. However, compliance with this requirement continues to present challenges.

The 2016 Office of the Inspector General (OIG) Report

In 2016, the OIG conducted a study that focused on state efforts to exclude 340B drugs from Medicaid rebates on the Medicaid managed care side. The OIG conducted structured interviews with states that pay for drugs through Medicaid managed care organizations (MCOs) to determine how they identify 340B drug claims.

The study found that most states use provider-level methods that enable them to identify the providers that use 340B drugs and then exclude drug claims from those providers from their Medicaid rebate requests. However, the OIG found that those methods may not accurately identify all individual 340B drug claims, creating the risk for duplicate discounts and forgone rebates.

The study found that claims-level methods improve accuracy in identifying 340B claims, helping to avoid duplicate discounts and ensure states correctly collect rebates. As a result, the OIG recommended that the Centers for Medicare & Medicaid Services (CMS) require states to use claims-level methods to identify 340B claims, but CMS did not act on that recommendation, saying it did not have the authority.   

The OIG’s 2018 Testimony

In 2018, testifying before the U.S. Senate Committee on Health Education and Welfare, an OIG official highlighted what she called the vulnerabilities in the 340B program that impede operations and oversight, and recommended changes to address those long-standing issues.

The first vulnerability was a lack of transparency that prevents assurance that 340B providers are not overpaying pharmaceutical manufacturers and that state Medicaid programs are not overpaying 340B providers. Recommended changes included:

  • HRSA fully implementing its authority to share ceiling prices with 340B covered entities
  • HRSA working with CMS to share ceiling prices with state Medicaid agencies
  • CMS requiring states to use claims-level data to identify 340B claims

The second vulnerability was the lack of clarity in program rules, creating uncertainty and resulting in both inconsistent program implementation and limited accountability. Recommended changes included:

  • HRSA clarifying the definition of an eligible patient
  • HRSA addressing whether 340B providers must offer discounted prices to uninsured patients

The OIG official also suggested that Congress make the statutory changes necessary to give HRSA or CMS the authority to make the suggested changes.

Post-Webinar Developments in Duplicate Discounts

Subsequent to the dates of the webinar, in January 2020, CMS issued an informational bulletin to state Medicaid agencies that sets forth what CMS described as best practices to prevent duplicate discounts. Best practices highlighted by CMS include the following:

  • Using the Medicaid Exclusion File to identify entities that use 340B drugs for Medicaid fee-for-service patients
  • Using the Medicaid state plan amendment process to limit the ability of covered entities and/or contract pharmacies to use 340B drugs for Medicaid beneficiaries
  • Using 340B claims-level identifiers
  • Using the two new Medicare Part B billing modifiers that CMS is implementing in connection with a reduction in Medicare Part B reimbursement for certain 340B purchased drugs
  • Including 340B duplicate discount provisions in Medicaid managed care contracts
  • Providing claims-level data to manufacturers, along with drug rebate invoices, to help ensure that there have been no duplicate discounts
  • Using specific Medicaid BIN/PCN combinations on Medicaid managed care plan identification cards

In addition, subsequent to the date of the webinar, and also in January 2020, the GAO issued a report recommending that HRSA improve its oversight of the 340B program in order to prevent such duplicate discounts. GAO recommended that CMS ensure that state Medicaid programs have written policies and procedures to prevent duplicate discounts, that HRSA incorporate covered entities’ compliance with state policies into its audits, and that HRSA require covered entities to work with manufacturers regarding repayment of identified duplicate discounts in managed care.

Manatt’s 50-State Survey

To better understand the interplay between the Medicaid and 340B programs, Manatt conducted a survey of Medicaid and 340B policies across all 50 states. The survey answers key questions, including:

  • What mechanisms do states use to identify 340B drugs billed directly to the Medicaid program so that states can exclude those drugs from their rebate requests to manufacturers?
  • What mechanisms do states use to identify 340B drugs billed to MCOs so that states can exclude those drugs from their rebate requests?
  • How do states identify 340B drugs dispensed by contract pharmacies?
  • How much do state Medicaid programs reimburse covered entities and contract pharmacies for 340B drugs and non-340B drugs?

The final report is more than 300 pages, but our top-line findings are summarized below. To identify 340B drugs billed to Medicaid, we found that:

  • Twelve states rely solely on the Office of Pharmacy Affairs’ (OPA’s) Medicaid Exclusion File.
  • Twenty-two rely solely on claims-level identifiers.
  • Some states use both approaches.
  • One state (South Dakota) prohibits covered entities from using 340B drugs for Medicaid beneficiaries.
  • One state (New Hampshire) permits 340B drugs for family planning clinics only.

In identifying 340B drugs billed to MCOs, we found that:

  • Some states require MCOs to use the same mechanism as the Medicaid fee-for-service (FFS) program to identify 340B drugs, which is problematic as the Medicaid Exclusion File is not intended to be used on the managed care side.
  • Some states require MCOs to have a methodology for identifying 340B drug claims but do not specify what that methodology should be.
  • Some states have no policies that address this issue or advise covered entities to contact MCOs directly.

When we looked at methods states use to identify 340B drugs dispensed by contract pharmacies, we learned that nearly two-thirds of state Medicaid programs prohibit 340B contract pharmacy arrangements entirely. This finding speaks to how challenging it can be to identify 340B drugs in the contract pharmacy context. The states that allow contract pharmacies use a variety of techniques to identify the 340B drugs that the contract pharmacies dispense:

  • Some states require contract pharmacies to use claims-level identifiers.
  • One state requires pharmacies to enroll under a separate National Provider Identifier (NPI) to bill 340B drugs and excludes all drugs billed under that NPI from rebate requests.
  • One state requires both covered entities and contract pharmacies to use a different provider number when billing for 340B drugs.

Turning to reimbursement rates and dispensing fees, our survey revealed that states have largely implemented the federal mandate that Medicaid programs reimburse for 340B drugs at acquisition cost, but dispensing fees can vary widely. Most states set dispensing fees for 340B drugs between $10 and $11 per prescription. There are significant differences, however, in how states reimburse for non-340B drugs.

Looking Forward

Given continued concerns about the accuracy of provider-level methods to identify 340B drugs that are billed to Medicaid, there is likely to be continued movement by state Medicaid programs toward using claims-level methods to identify 340B drugs so they can be carved out of state Medicaid rebate requests. There also may be additional focus on oversight of the 340B program more broadly, aside from the duplicate discount issue.

In the last several congressional sessions, a number of 340B-related pieces of legislation were introduced that would have made changes to the program, but none were enacted. The proposals covered a range of issues, from establishing a statutory definition of who would qualify as an eligible patient to proposing a moratorium on new contract pharmacy arrangements to requiring hospitals participating in the 340B program to provide information on the costs incurred for charity care.

Of course, discussions about the 340B program and its future are intertwined with larger issues around drug pricing and importation. Some are questioning if the 340B program would even need to continue in its current form if the federal government makes significant changes in the drug pricing arena. One thing most 340B stakeholders are likely to agree on is that this is an area well worth watching. 

Note: Click here to view free on demand (and earn CLE credit for) our full webinar on the interplay between 340B and Medicaid . Click here to download a free copy of the presentation and a new infographic highlighting key survey findings. If you are interested in learning more about our full 340B survey, please contact Catherine Rucci at crucci@manatt.com.  



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