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July 03, 2020

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Mid-Year Medicare 340B Drug Pricing Program Update

Since our last 340B Drug Pricing Program (340B Program) update, the U.S. Centers for Medicare & Medicaid Services (CMS) has issued two regulations, the final Medicaid managed care regulation and a proposed update to the Medicare outpatient prospective payment schedule to implement new site neutrality requirements, that impact the 340B Program.  Providers participating in the 340B Program (covered entities), as well as their contract pharmacies and other stakeholders such as drug manufacturers, state Medicaid agencies, and Medicaid managed care plans, should be aware of the potential changes that may occur as these rules become effective.  Additionally, the Health and Human Services Office of Inspector General (OIG) recently issued a report making recommendations related to the 340B Program that could also affect 340B Program policy.  In addition, the Health Resources and Services Administration (HRSA) expects to publish significant new 340B Program regulations and guidance later this year.

Duplicate Discounts for Medicaid Managed Care Patients

Covered entities and other stakeholders involved in the 340B Program should be aware of evolving mechanisms for identifying claims submitted to Medicaid managed care plans (Medicaid plans) for outpatient drugs purchased through the 340B Program.  In May 2016, the Centers for Medicare and Medicaid Services (CMS) published long-anticipated Medicaid managed care regulations (Final Rule) that require Medicaid plans that provide outpatient drug coverage to report drug utilization data to the state so that rebates may be claimed under the Medicaid Drug Rebate Program (MDRP).  As part of this reporting, Medicaid plans are required to exclude utilization data for drugs that are subject to discounts under the 340B Program so that drug manufacturers will not subject to a “duplicate discount.” State Medicaid agencies must implement these requirements beginning with contracts with Medicaid plans that begin on or after July 1, 2017.  To implement this reporting, mechanisms (potentially including new means to identify which patients are part of a plan’s Medicaid line of business) will need to be developed to allow covered entities, contract pharmacies, and Medicaid plans to identify which drug claims are filled with 340B drugs.

In the preamble to the Final Rule, CMS indicates that state contracts with Medicaid plans should include specific language addressing which tools the plans can use to exclude from utilization reports drugs purchased through the 340B Program.  CMS notes that the states, managed care plans, covered entities, and pharmacies should work together to establish a standard process to identify 340B claims effectively. CMS identifies multiple options, including: (1) plans could include in their contracts with pharmacies a reference to billing instructions or processes that must be followed when identifying a 340B patient and dispensing a 340B drug to a Medicaid patient, or (2) states could require plans to require covered entities or their contract pharmacies to use specific identifiers on prescriptions so the plan recognizes that the claim should be billed as a 340B claim.  States may also develop mechanisms where covered entities submit managed care claims data directly to the state, in which case Medicaid plans are not required to exclude 340B claims from their utilization reports.  Covered entities and their contract pharmacies should be alert for potential guidance from either state Medicaid programs or individual Medicaid plans related to the identification and reporting of the use of 340B drugs billed to Medicaid plans.  The Final Rule does not address reimbursement by Medicaid plans for drugs dispensed by covered entities or their contract pharmacies.

In June 2016, the OIG also addressed the issue of Medicaid managed care rebates and 340B drugs when it published a report entitled “State Efforts To Exclude 340B Drugs From Medicaid Managed Care Rebates.”  In the report, the OIG concludes that many states use methods that may be inaccurate to identify 340B drug claims when calculating manufacturer rebates for drugs paid through Medicaid plans.  The OIG’s report found that the majority of states that report having methods to identify claims for 340B drugs purchased for Medicaid plan patients use provider-level methods to identify such claims.  The report concludes that these methods may not accurately identify 340B claims from a covered entity because they treat all drug claims from the covered entity the same way and do not allow covered entities to differentiate among its 340B claims and non-340B claims to Medicaid, therefore creating a risk of duplicate discounts or of foregone rebates.  The OIG’s report found that fewer states use claim-level methods to identify 340B claims and that these methods are more accurate because they permit covered entities to differentiate among specific claims.  The report also found that many states reported using the HRSA Medicaid Exclusion File to identify 340B claims for Medicaid plan drugs even though HRSA has issued guidance providing that the Medicaid Exclusion File should only be used for fee-for-service drugs.

The OIG report recommends that CMS require states to use claim-level methods to identify 340B claims, while acknowledging that CMS could allow states flexibility in complying with this requirement.  Consistent with its position in the Final Rule, CMS disagreed with the OIG’s recommendation, stating that current law does not contemplate this requirement for states.  The OIG also recommends that HRSA clarify its final 340B Program Omnibus Guidance to specify that for Medicaid plan drugs, covered entities must follow state instructions to facilitate claim-level identification of drug purchased through the 340B Program, which is not contemplated under the proposed guidance.  HRSA agreed with the OIG’s recommendation to clarify this issue in the final guidance, but said that it would consider OIG’s recommendations in conjunction with the public comments it received on the proposed guidance.

CMS Proposed Rule on Payments for Off-Campus Hospital Outpatient Clinics

On July 6, 2016, CMS issued proposed regulations to implement Section 603 of the Bipartisan Budget Act of 2015.  The proposed regulations would implement new “site neutrality” requirements that will change to the way certain off-campus hospital outpatient departments will be paid.  The proposed regulations do not specifically discuss the eligibility of these off-campus hospital departments for the 340B Program.  However, CMS specifically states that the off-campus outpatient departments would still be considered to be part of the hospital and that the hospital as a whole would continue to be required to meet all applicable conditions of regulations governing its provider-based status.  Under current HRSA guidance, an off-campus location of a hospital is eligible to participate in the 340B Program if the hospital is a covered entity and the off-campus location is a reimbursable cost center on the hospital’s Medicare cost report and is registered with HRSA as a “child site.”  In order to be a reimbursable cost center, Medicare’s provider-based requirements must be met.  In the proposed rule, CMS requests comments on issues including the hospital cost report and enrollment of these off-campus clinics.  Hospitals that participate in the 340B Program and utilize off-campus locations affected by the proposed rule should analyze carefully the potential implications of the proposed regulations and the issues which CMS seeks comments on, and consider submitting comments to help ensure the preservation of 340B Program eligibility for the impacted off-campus locations. We note that HRSA also actively sought comments on issues related to demonstrating the eligibility of off-site outpatient facilities as part of its proposed omnibus guidance.  It is likely that HRSA will consider CMS’ final rule when issuing its final guidance.

Impending HRSA Rules and Guidance

This year was expected to be a critical year with respect to the issuance of HRSA guidance impacting 340B Program covered entities and drug manufacturers.  While several key rules and guidance have been delayed, some or all of these are still expected later this year based on the agency’s regulatory agenda.  HRSA is scheduled to issue a proposed rule establishing a required and binding administrative dispute process for disputes between covered entities and drug manufacturers in September.  A final rule imposing monetary sanctions on drug manufacturers who charge covered entities more than the applicable 340B Program price and setting forth the standards and methodology for the calculation of ceiling prices for the 340B Program is set to be published in November.  Additionally, HRSA’s long-awaited final omnibus guidance is now scheduled to be published in December, although it would not be surprising to see this guidance further delayed.

© 2020 Foley & Lardner LLPNational Law Review, Volume VI, Number 215


About this Author

Elizabeth S. Elson, Foley Lardner, Medicare Compliance Attorney, Health Care
Of Counsel

Elizabeth Elson is of counsel with Foley & Lardner LLP where her practice focuses on counseling clients on federal and state health care legislation and reimbursement and compliance issues arising under government programs such as Medicaid and Medicare. She is a member of the Health Care Industry Team. Ms. Elson worked in the Los Angeles office until 2008, when she left as a partner to work as in-house counsel at Amgen in Thousand Oaks, California. She returned to Foley in 2011.

Anil Shankar, Foley Lardner, Health Care Lawyer, Attorney, Legislation
Senior Counsel

Anil Shankar is an associate with Foley & Lardner LLP. He focuses his practice on complex regulatory and reimbursement matters, with a particular focus on the Medicaid program and issues affecting safety net providers. He has conducted extensive research and advised clients with regard to the implementation and development of Medicaid demonstration projects, and has analyzed opportunities for, and helped to implement, Medicaid supplemental payments. Mr. Shankar routinely advises clients on new developments in the Medicaid program, including issues related to Medicaid managed care and to behavioral health services. Mr. Shankar also advises clients on matters relating to the 340B drug pricing program. He is a member of the firm’s Health Care Industry Team.