Last week, Mintz Levin and ML Strategies released a joint Alert analyzing key provisions of the Covered Outpatient Drug final rule (“Final AMP Rule”) and their impact on manufacturers, pharmacy benefit managers (“PBMs”), and pharmacies.  The Alert focuses on the following four provisions: (i) the definition of bona fide service fees; (ii) the definition of bundled sales; (iii) the definition of retail community pharmacy; and (iv) the change in Medicaid reimbursement to reimbursement based on Actual Acquisition Cost (“AAC”).

On the heels of the release of the Final AMP Rule, CMS released a State Medicaid Director Letter providing guidance on implementation of the Final AMP Rule.  The letter provides practical instructions to the states on their obligation to adopt a Medicaid reimbursement methodology for AAC that reflects the “actual prices” pharmacy providers paid to acquire the drugs.  In addition to instructions for setting a Medicaid reimbursement methodology based on AAC, the letter advises states on their obligation to set a professional dispensing fee that reflects the pharmacist’s professional services and costs.   CMS does not dictate that states use a specific methodology or formula for establishing a professional dispensing fee, but warns that the fee must be sufficient to provide adequate reimbursement and ensure sufficient beneficiary access.

In the State Medicaid Director Letter, CMS also instructs states that their obligation to reimburse pharmacies at AAC carries consequences for the 340B Drug Discount Program. The AAC-based Medicaid reimbursement for drugs purchased through the 340B program should not exceed the 340B ceiling price – the price at which most covered entities will purchase the drug.  The requirement to reimburse at no more than the 340B ceiling price will apply regardless of whether the reimbursement is made to a 340B covered entity or its contract pharmacy.

A handful of states, such as California, already have approved State Plan Amendments (“SPA”) where reimbursement is the lesser of AAC or the 340B ceiling price.  In the states that already use AAC for 340B, 340B providers or their contract pharmacies are generally required to bill Medicaid using the actual acquisition cost of the drug, which is often the ceiling price, and are required to use a modifier on the claim that notifies the state that the drug should be exempt from Medicaid Drug Rebate invoicing.  But this requirement is not uniform.  Under the AMP Rule, all states will be required to ensure their SPA reflects an AAC or ceiling price-based payment methodology for 340B entities.

It is interesting to note that CMS specified that AAC or ceiling price reimbursement extends to 340B contract pharmacies.  Several states not only currently use AAC or 340B ceiling price as the Medicaid reimbursement rate, they also prohibit 340B covered entities or their contract pharmacies from excluding Medicaid patients from receiving 340B drugs; those states want to ensure Medicaid gets to share in the savings from 340B.  However, as we blogged in the past, this is slightly at odds with HRSA’s proposed 340B Drug Pricing Program Omnibus Guidance (“Proposed Guidance”), in which HRSA recommended that contract pharmacies default to excluding Medicaid  patients.  HRSA stated that “it will be presumed that the contract pharmacy will not dispense 340B drugs for its Medicaid fee-for-service (“FFS”) or MCO patients.”  The contract pharmacy can dispense 340B drugs to Medicaid patients only if the covered entity “wishes” to make those drugs available to Medicaid members and provides HRSA with a written agreement describing compliant procedures.

The 340B provisions in the Final AMP Rule and subsequent CMS instructions will require State Medicaid programs to re-evaluate and update their 340B payment methodology.  In doing so, states may place additional requirements on 340B covered entities and 340B contract pharmacies – such as requirements that they provide 340B drugs to Medicaid patients.  And the fact is, HRSA has no existing legal authority to trump any such state requirement.  It will be important for 340B covered entities, and their contract pharmacies, to monitor changes to state laws and regulations governing the provision of 340B drugs to Medicaid beneficiaries, and the resulting requirements for billing and reimbursement of those drugs to the states.