CMS Issues Guidance to States on 340B Duplicate Discounts

Late last year, we noted that the Massachusetts Medicaid program had proposed regulations to address issues related to the prohibition on duplicate discounts in the 340B program.  The Massachusetts solution was relatively straightforward:  for high-cost drugs, Massachusetts Medicaid was going to claim the Medicaid rebate on those drugs itself, meaning that qualifying hospitals could not acquire the drugs under the 340B program.  Little did we know that CMS was also planning to address the same issue, but sure enough, they did so here in this Informational Bulletin.  We thought that the issuance of the CMS guidance would be a good time to revisit the duplicate discount policy.

As a refresher, there are two separate federal statutes at play.  The first is the Medicaid prescription drug rebate program.  In order for a pharmaceutical or biotechnology manufacturer to have its product covered under a state Medicaid program, it must agree to provide a rebate equal to at least 23.1% of the price of the drug to Medicaid.[1]  The second is the 340B program, which is a reference to the section of the Public Health Service Act where the program is codified.  Under the 340B program, a pharmaceutical manufacturer must agree to make its products available to a set of “covered entities” at a discount – at the Medicaid price, at least.[2]  Covered entities include community health centers, hospitals that treat a disproportionate share of low-income individuals, AIDS Drug Assistance Programs, and other entities that serve low-income patients.

But as we noted in our earlier post, what happens if a Medicaid enrollee is prescribed a drug that is going to be dispensed from a 340B covered entity (or an affiliated pharmacy)?  Does the state Medicaid plan get the rebate or does the covered entity get the opportunity to acquire the drug at the 340B discount?

The statute does not answer that question.  But what it does say is that the manufacturer doesn’t have to pay twice:  either Medicaid gets the rebate or the covered entity gets the discount.  And unless a state steps in to assert its right to claim the rebate (as Massachusetts has proposed to do for high-cost drugs), the state and the covered entity work it out between themselves.

Well, all of this is easier said than done.  Millions of prescriptions get written for Medicaid enrollees every day, and millions of Medicaid beneficiaries seek health care at covered entities every day.  Compounding the problem is the fact that two different agencies administer the program:  CMS administers the drug rebate program, but the Health Resources and Services Agency (HRSA) administers the 340B program.

We assume that manufacturers, states and covered entities are acting in good faith and want to do the right thing.  So earlier this month, CMS issued its Informational Bulletin – which is really a list of best practices to ensure that manufacturers aren’t improperly forced to pay duplicate discounts.  CMS issued the Bulletin in response to two reports by the Department of Health and Human Service’s Office of Inspector General which indicated a lack of compliance with the statute.  But in response to those reports, states have said that it is becoming increasingly difficult to avoid claiming duplicate discounts as the number of Medicaid enrollees in managed care has grown.[3]

At least initially, HRSA tried to avoid duplicate discounts by creating what is known as the Medicaid Exclusion File (MEF) for non-Medicaid managed care claims.  The MEF allows a manufacturer to determine whether a covered entity has chosen to purchase drugs via the 340B discount (called “carve in” covered entities) or via another mechanism, thereby foregoing the discount (called “carve-out” covered entities).  Also, CMS has issued two rules in the past several years in an attempt to avoid duplicate discounts.  But as the Office of Inspector General reports note, the problem persists.  Hence, the Informational Bulletin: a list of best practices for state Medicaid plans to avoid duplicate discounts.

We won’t go over all the details of the best practices here, but we will list a few:

  • States are encouraged to refer to the MEF to exclude drug claims from covered entities when submitting claims to manufacturers for rebates. Of course, the problem with this recommendation is that the MEF only applies to Medicaid FFS claims – and over 70% of Medicaid enrollees are enrolled in managed care.  (Of the remainder, a significant percentage are dually eligible for Medicare and Medicaid – and their drugs are provided by Medicare Part D).
  • Several years ago, HRSA declared that covered entities could dispense 340B-acquired drugs via pharmacies that have a contractual relationship with the covered entity. The CMS guidance suggests that states develop strategies with contract pharmacies to avoid duplicate discounts.  States could also develop requirements on covered entities or contract pharmacies regarding duplicate discounts via the state plan amendment process.
  • CMS also suggests that states utilize various forms of claims identifier options that would allow a contract pharmacy to designate a drug as 340B eligible and therefore not eligible for a Medicaid rebate.
  • The agency has also recommended that states include duplicate discount provisions in contracts with Medicaid managed care plans. After all, Medicaid managed care plans are vendors that are under contract with state Medicaid agencies and are subject to mutually-negotiated contract terms.
  • CMS has recommended that – even though they are not required to do so – states make claims level data along with claims invoices available to manufacturers. This would enable manufacturers to ascertain and ensure that they are not paying duplicate discounts.
  • Finally, because Medicaid managed care plans often have multiple lines of business, CMS recommends that Medicaid managed care plans and their PBMs use separate claims numbers to identify their managed care lines of business. Doing this would highlight Medicaid patients who are not necessarily entitled to a 340B discount.

CMS and HRSA still need to do additional work to address the issue of duplicate discounts.  But the Informational Bulletin is a start to ensure that all parties comply with the requirements of the 340B statute.

[1] The rebate can be higher if the manufacturer enters into a special deal with a favored payer.  Suppose a manufacturer provides a rebate of 50% of the price of the drug to a select payer.  Medicaid is also entitled to that “best price” and so, in that example, the rebate would be higher.

[2] Discounts to covered entities do not reset a manufacturer’s best price, so a manufacturer may be willing to give a greater discount to a 340B covered entity.

[3] Before the Affordable Care Act, covered outpatient drugs dispensed to Medicaid beneficiaries enrolled in a managed care plan were not subject to rebates.  The ACA changed this exclusion in the law – but because states can’t easily track individual managed care enrollees, it‘s easier for a claim to slip through.


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