ACA Medicaid Managed Care Rebates and the 340B Exemption

September 2012

The Affordable Care Act (ACA)i added Medicaid managed care drug claims to the mandatory Medicaid drug rebate program, following the longstanding rebate provision in fee-for-service (FFS) Medicaid. States are required to collect the rebates based on utilization data provided by Medicaid managed care organizations (MMCOs). In establishing mandatory rebates, Congress also addressed the 340B duplicate discount issue, but in a way that differs from the treatment of 340B claims in the fee-for-service program. As States continue to implement, under significant budget pressures, pass-through of entity 340B savings through MMCOs, consideration of the origin of the managed care rebates and the 340B exemption is timely.

Duplicate Discount Prohibition in FFS Medicaid

The 340B statute prohibits covered entities from billing Medicaid FFS programs for 340B drugs, if the State will collect a rebate on the same claim. The legal burden to prevent duplicate discounts in FFS Medicaid is on the entities. They are required to conform to State-specific Medicaid billing rules, which may include requirements to flag 340B claims and may mandate billing the State at 340B cost. Entities are also required, by federal statute and HRSA guidance, to report their Medicaid carve-in/carve-out status to HRSA for listing in the Medicaid Exclusion File. Manufacturers and some State Medicaid agencies use this file to exclude claims from 340B providers in rebate payments and requests.

HRSA does not require States to mandate 340B cost billing and reimbursement, nor does CMS. CMS recently acknowledged in its proposed rule on AMP and other Medicaid drug provisionsii that HRSA withdrew guidance that required entities to bill states at 340B cost; HRSA instead instructed entities to follow State rules.iii This acknowledgment followed the recent HHS OIG reportiv detailing the absence of guidance from States and CMS on 340B billing and payment policy.

340B Claims in Medicaid Managed Care

Duplicate discounts on the MMCO side are handled differently in statute. The ACA MCO rebate provision included an exemption for 340B drugs.v Congress included this exemption at the request of 340B covered entities with the intent to preserve current savings for these safety net providers. Technically, there is no Medicaid MCO rebate for any drug purchased under 340B and billed to an MMCO. This statutory structure shifts the legal burden for preventing duplicate discounts from the covered entities to the States. Practically, however, States need to establish methods for identifying 340B claims for exclusion from ACA rebate requests to manufacturers. Where States have implemented any method at all, they generally have contracted responsibility to the MCOs to identify 340B claims in drug utilization files. Plans, in turn, are likely to require covered entities and their contract pharmacies to flag 340B claims in point-of-sale (POS) billing or in post-adjudication reporting.

MCO 340B Claims Identification and Reimbursement

Implementation of the ACA MCO rebate provision and the 340B exemption is lacking at all stakeholder levels. ACA MCO rebates apply to utilization retroactive to the passage of ACA in March, 2010, but CMS, HRSA, most States, and most MCOs (and their PBMs) have not implemented an effective method for excluding 340B claims from State MCO rebate requests.

While most States have not addressed the MCO 340B issue directly, many are seeking to take advantage of the entities’ 340B discount. Methods include mandatory pass-through of the 340B cost on the FFS side, coupled with billing rules that require the use of NCPDP flags to identify 340B claims. States are increasingly considering mandating cost-based billing on the MCO side as well, either explicitly requiring MCOs to set such rules for entities and pharmacies or by adjusting capitation rates to reflect the States’ expectations.

Acquisition cost billing for 340B claims, in FFS and managed care, is not required by federal law, by HRSA, nor by CMS, but instead is a State-specific decision that may be reflected in State statute, the Medicaid State Plan, State contracts with MMCOs, and/or MMCO provider agreements and manuals. Absence of such a requirement does not mean that the default requirement is full pass-through of 340B savings to States and plans. States and MMCOs must document 340B billing policies, as OIG suggested.

Challenges in Identification of 340B Claims in Contract Pharmacy Arrangements

After HRSA relaxed the restriction on contract pharmacies in 2010, the number of registered contract pharmacy arrangements quadrupled. This expansion represents a shift in the prevailing method of 340B program utilization from in-house entity pharmacies dispensing to eligible patients from dedicated 340B inventory to a virtual inventory and replenishment model mediated by community pharmacies. The in-house method lends itself to real-time 340B claims identification and billing. By contrast, adjudication of 3rd-party claims through community pharmacies does not – in most cases, the pharmacy does not know the 340B status of a prescription or patient at the point of sale and cannot flag such a claim for billing and tracking. 340B identification, purchasing, and replenishment are generally carried out post-adjudication. NCPDP has established new flags and transaction types in the current electronic billing standard (effective October, 2012)vi to address these challenges, but adoption of the post-adjudication method may be slow. Most States have included explicit 340B flags in pharmacy claim instructions and continue to rely on the HRSA Medicaid Exclusion File, but practically these methods are designed for the traditional dedicated in-house 340B environment. Reliance only on POS flags and the Exclusion file may hinder States’ ability to reliably differentiate 340B claims run through contract pharmacies and/or paid by MMCOs.

Stakeholders are encouraging HRSA, CMS, and the States to acknowledge the difference in the duplicate discount prohibitions in FFS and managed care, the corresponding difference in Congressional intent, and the need for States and manufacturers to properly exclude 340B claims from mandatory MMCO rebates. In the meantime, many entities are unilaterally carving out MMCO claims from 340B purchases to prevent duplicate discounts despite ACA construction and intent.

i Patient Protection and Affordable Care Act (PPACA), Pub. L. No. 111-148; http://www.gpo.gov/fdsys/pkg/PLAW-111publ148/pdf/PLAW-111publ148.pdf

ii CMS Medicaid Program; Covered Outpatient Drugs; Proposed Rule; 77 FR 5350; https://www.federalregister.gov/r/0938-AQ41

iii Notice Regarding the Section 340B Drug Pricing Program—Program Guidance Clarification; 65 FR 13983; ftp://ftp.hrsa.gov/bphc/pdf/opa/FR03152000.pdf

iv HHS Office of Inspector General, State Medicaid Policies And Oversight Activities Related To 340B-Purchased Drugs, June 2011; http://oig.hhs.gov/oei/reports/oei-05-09-00321.pdf

v 42 USC §1396r-8(j)(1); http://www.gpo.gov/fdsys/pkg/USCODE-2010-title42/pdf/USCODE-2010-title42-chap7-subchapXIX-sec1396r-8.pdf

vi NCPDP 340B Information Exchange Reference Guide, July 2011; http://www.ncpdp.org/pdf/340B_Information_Exchange_Reference%20Guide_v1.0.pdf