The View From the Nation’s Capital

Guest Contributor: Ted Slafsky
March 13, 2019

Be Vigilant on State 340B Activity

For the last two years, the 340B program has come under unprecedented scrutiny from the Trump Administration and Congress. In the prior congressional session, several studies were conducted by federal and congressional watchdogs, five hearings were held, and dozens of bills were circulated for review or introduced. To top that off, the administration has made 340B reform a key priority, taking steps that have caused great concern in the 340B provider community.

With a new Congress comes new priorities. While the Democratically controlled House and the Republican majority in the Senate are in the fact-finding stage when it comes to drug prices, with most of the attention focused on drug manufacturer list prices and the role of Pharmacy Benefit Managers, the battle over the Administration’s nearly 30% reduction in Medicare Part B payments to hospitals remains in the courts.

Key 340B State Trends

Therefore, it’s a good time for us to take a closer look at state activities that directly impact 340B stakeholders. While this column won’t address every consequential development, it will highlight key trends, as well as some troubling and positive activity. I will also provide some important advice.

First, a quick history lesson. 340B became law in 1992, two years after the creation of the Medicaid drug rebate program. Both programs use the same discount methodology. To protect drug companies from providing an upfront discount to covered entities (CE) and a rebate to the states (duplicate discount), many states required 340B pharmacies to bill the Medicaid fee-for-service (FFS) program at acquisition cost plus a state-determined dispensing fee. In 2017, this became a federal requirement. However, in the managed care space, reimbursement rates have always been negotiated between pharmacies and health plans. This has enabled CEs to bring in much-needed revenue to offset losses in serving the uninsured and underinsured, as well to invest in programs to improve health outcomes for vulnerable patients.

Now that more Medicaid patients are enrolled in managed care than traditional FFS, the Centers for Medicare & Medicaid Services (CMS) requires states to have mechanisms in place to exclude 340B claims before they submit invoices for Medicaid rebates to manufacturers. Unfortunately, as Powers Law attorney Shuchi Parikh points out, states are increasingly taking the position that the proper remedy for resolving duplicate discounts is for manufacturers to seek recoupment of the 340B discount from the provider rather than the rebates they improperly paid to the state. Parikh has heard from clients that California, New York, Minnesota, Ohio, Texas, Louisiana, Maryland, Pennsylvania, and Washington have adopted this position. “Under federal law, the obligation to resolve Medicaid managed care duplicate discounts lies with the state, so we believe this approach to resolving duplicate discounts is problematic,” says Parikh.

Other Troubling Developments

Parikh says that New Hampshire and South Dakota have instituted mandatory carve-out policies that require 340B providers to carve out Medicaid in all settings. These mandatory carve-out policies deprive 340B providers of their federal right to participate in the 340B program with respect to Medicaid drugs.

Some states, including Pennsylvania, Nevada, and Washington, rely on the Health Resources and Services Administration’s (HRSA) Medicaid Exclusion File to prevent duplicate discounts on managed care organization (MCO) claims, even though HRSA has made it clear that the file only applies to FFS claims. This policy leads to inaccuracies and requires CEs to make the same carve-in/carve-out selection for both MCO and FFS drugs. It also effectively forces 340B providers to carve out Medicaid managed care at their contract pharmacies.

A large number of state plan amendments approved by CMS contain language asserting that 340B drugs dispensed by contract pharmacies are not covered. Some states, such as Delaware, are improperly interpreting that this language applies to Medicaid managed care drugs. “It’s important for 340B providers to be aware that states are required to provide adequate notice and an opportunity to provide input on any changes in Medicaid reimbursement rates. If the state has not done so, then the reimbursement change may be unenforceable,” says Parikh.

California 340B entities face another type of curveball. In January, Governor Gavin Newsom issued an executive order requiring that all state agencies consolidate into a single purchasing unit by 2021. The governor hopes this will enable the state to use its purchasing power to negotiate even lower drug prices for the Medicaid program. “Under the order, all Medicaid beneficiaries must receive their drug coverage through its FFS plan and may not continue to rely on its MCOs,” says Dentons Law Counsel, Greg Doggett, who recently posted a blog on the matter. Unfortunately, this could lead to significant losses to CEs since they are currently able to negotiate higher reimbursement rates from Medicaid MCOs. It is unclear if the state was aware of this consequence, and California 340B provider groups are working to educate the governor.

Potential Solutions

While California appears to be reverting to a traditional FFS model, managed Medicaid continues to grow nationally. Given the challenges in identifying 340B claims at the point-of-sale at retail pharmacies, a more workable solution is a retrospective claims identification model. For example, Oregon has implemented a system that allows for retrospective 340B claims identification. Pennsylvania is implementing a pilot program similar to the Oregon model. 340B providers could also work with their 340B administrators, managed care plans, and/or pharmacy benefit managers to develop a retrospective method for flagging 340B claims, says Parikh.

Win-Win Partnerships

Not all is gloom and doom. Some states (including Tennessee, Illinois, and Arizona) have an enhanced dispensing fee for 340B drugs that is higher than the dispensing fee for non-340B drugs. CEs in other states should advocate for similar policies.

The National Governors Association (NGA) and Pew Charitable Trusts, two important thought leaders in Washington, have recently recommended that states leverage their relationships with 340B entities to lower costs and improve health outcomes. Sixteen state correctional facilities currently partner with covered entities for purchasing and providing care to inmates. The states generally restrict use to individuals with highly complex and expensive therapies such as HIV/AIDS and Hepatitis C.

The State of Texas, one of the forerunners in 340B collaboration, has reduced drug costs by 60% over the past five years, according to Pew. The state credits its 340B partnership with UTMB Galveston, a teaching hospital, for keeping drug spending on the incarcerated significantly below national averages. At the same time, the state has met or exceeded the chronic disease quality measures used by health insurers. Pew points out that Texas has been able to utilize 340B discounts for a large group of drug categories since UTMB is responsible for treating most of the state’s prisoners. “Gaining such advantageous pricing across such a large swath of drug categories might be a hidden-from-view advantage of using a state’s own medical school and affiliated teaching hospital for general prison care,” says Pew. In addition to the incarcerated, NGA says, “States interested in a comprehensive approach to addressing public health crises may want to consider additional strategies that target Medicaid and possibly other state populations.”

Take-Home Message

Considering all of the state-level action and continued interest in keeping costs down, 340B stakeholders need to stay on top of what is happening back at home. It is essential to engage with your governor, Medicaid director, and state legislators. Working closely with your state and national advocacy groups is a great way to ensure your voice is heard. Since it’s in everyone’s best interest for 340B and state health programs to thrive, CEs should strive for mutually beneficial arrangements with state and local governments.


Other “View From the Nation’s Capital” Posts from Mr. Slafsky:

Clearing Off the Desk (Part 1)
Clearing Off the Desk (Part 2)
A Welcome Addition to the 340B Debate

Ted Slafsky, a leading pharmaceutical policy thought leader, is Publisher & CEO of 340B Report, the first and only independent news service covering the federal 340B drug pricing program.  He is also Founder & Principal of Wexford Solutions, a Washington, D.C. based firm that provides government relations, communications, and business development services. You can follow Mr. Slafsky on Twitter at @tslafsky or reach him at [email protected] or (703) 517-1325.


About 340B Report:

340B Report is the only independent news service that provides breaking news and analysis about the federal 340B Drug Pricing Program. We follow all 340B program developments big and small—in federal government agencies, Congress, courts, the states, associations, the private sector, academia, and more.