Editor’s Note: To help provide clarity on the interplay between Medicaid and 340B, Manatt Health has developed a 50-state survey on 340B, analyzing how state Medicaid programs reimburse 340B-covered entities and contract pharmacies for 340B drugs, and the methodologies states employ to avoid duplicate discounts. Based on a comprehensive review of statutory, regulatory and subregulatory guidance issued by state Medicaid agencies, as well as direct input from state officials, the survey is a critical tool for gaining a full understanding of 340B practices and requirements in Medicaid programs across the country—in one complete resource. The article below provides key information on 340B and its interplay with Medicaid and summarizes highlights of the survey results. To download a free infographic sharing some of the survey’s findings, click here. To learn more about the 340B survey, please contact Sandy Robinson at swrobinson@manatt.com or 202.585.6618.

What Is the 340B Prescription Drug Discount Program?

The federal 340B prescription drug discount program was established in 1992 by Section 340B of the federal Public Health Service Act. The 340B program requires pharmaceutical manufacturers that participate in the Medicaid program (essentially all pharmaceutical manufacturers) to sell outpatient drugs at discounted prices to certain healthcare providers and programs that serve high volumes of low-income patients (known as covered entities). Outpatient drugs covered by the 340B program are Food and Drug Administration (FDA)-approved prescription drugs, over-the-counter drugs written on a prescription, biological products that can be dispensed only by a prescription (other than vaccines) and FDA-approved insulin.

Only those healthcare providers and programs that are specified in the 340B statute qualify as covered entities and may participate in the 340B program. When the program was first established, eligible providers and programs consisted of the following:

  • Disproportionate share hospitals with a disproportionate share adjustment percentage greater than 11.75%;
  • Federally qualified health centers (FQHCs), including FQHC look-alikes;
  • Family planning projects funded under Section 1001 of the Public Health Service Act;
  • Ryan White clinics, which provide care to low-income people living with HIV;
  • State AIDS Drug Assistance Programs;
  • Black lung clinics;
  • Hemophilia treatment centers;
  • Native Hawaiian health centers and urban Indian organizations; and
  • Federally funded sexually transmitted disease (STD) and tuberculosis clinics

In 2010, the Patient Protection and Affordable Care Act (ACA) expanded the list of eligible providers and programs to include:

  • Critical access hospitals;
  • Freestanding cancer hospitals with a disproportionate share adjustment percentage greater than 11.75%;
  • Children’s hospitals with a disproportionate share adjustment percentage greater than 11.75%;
  • Sole community hospitals with a disproportionate share adjustment percentage greater than 11.75%; and
  • Rural referral centers with a disproportionate share adjustment percentage greater than 11.75%

The Interplay Between the 340B Program and Medicaid

The 340B program has not been without controversy. Supporters believe that it is vital to helping covered entities care for their uninsured and underinsured patients, while critics assert that it is being abused by covered entities. This dispute has resulted in calls for increased oversight of the program by the Office of Pharmacy Affairs (OPA), the office within the Health Resources and Services Administration that administers the 340B program.

The interplay between the 340B program and the Medicaid program, and the 340B statute’s requirement that a drug may not be subject to both a 340B discount and Medicaid rebate, prompted Manatt’s 50-state survey. As a result of this statutory requirement, a covered entity may not use 340B drugs for Medicaid patients unless the state Medicaid program has a mechanism in place to identify 340B drugs and exclude them from its rebate requests.

To assist state Medicaid programs in excluding 340B drugs from their rebate requests, OPA requires covered entities that decide to use 340B drugs for their Medicaid patients to provide OPA with their Medicaid provider number/NPI, which is then listed on an OPA Medicaid exclusion file that state Medicaid programs can consult to determine whether a covered entity is using 340B drugs for Medicaid patients or not. However, due to concerns about the accuracy of the Medicaid exclusion file, some state Medicaid programs also require covered entities to use specific claims-level identifiers when they submit claims to Medicaid for 340B drugs, so that the Medicaid program can exclude those drugs from its rebate requests.

Where drugs are paid for by fee-for-service Medicaid, identifying 340B drugs and carving them out of rebate requests is relatively straightforward. In states where Medicaid drug coverage is provided through managed care organizations (MCOs), however, it can be more challenging, since the MCOs must first be able to identify which drug claims are for 340B drugs so they can in turn provide this information to the state Medicaid program.

Also complicating this issue is the existence of contract pharmacy arrangements. In addition to dispensing 340B drugs through their in-house pharmacies, OPA permits covered entities to enter into one or more arrangements for outside pharmacies, referred to as contract pharmacies, to dispense 340B drugs to patients of the covered entity. In a contract pharmacy arrangement, the covered entity buys the drugs, but the drugs are shipped to the contract pharmacy, and dispensed by the contract pharmacy to eligible patients of the covered entity, in exchange for a dispensing and/or administrative fee. This can make identifying 340B drugs more challenging, since it requires a mechanism for the contract pharmacy to identify which claims are filled using 340B drugs.

Highlights of 340B Survey Findings

To bring clarity to the issues surrounding the interplay between Medicaid and the 340B program, Manatt conducted a first-of-its-kind survey of all 50 states. The survey answers critical questions, including:

  • What mechanism do state Medicaid programs use in each of the following circumstances to identify 340B-purchased drugs so that they can exclude them from their rebate requests to manufacturers: – 340B-purchased drugs billed by covered entities directly to the Medicaid program? – 340B-purchased drugs billed by covered entities to MCOs? – 340B-purchased drugs billed by contract pharmacies directly to the Medicaid program? – 340B-purchased drugs billed by contract pharmacies to MCOs?
  • How much do state Medicaid programs reimburse covered entities and contract pharmacies for 340B drugs billed directly to the Medicaid program (both ingredient costs and dispensing fee, if any)?
  • Does the Medicaid program have requirements regarding how much MCOs may reimburse covered entities and contract pharmacies for 340B-purchased drugs billed to MCOs (again, both ingredient cost and dispensing fee, if any)?
  • How does reimbursement for 340B-purchased drugs in any of the above contexts differ from reimbursement for non-340B drugs?

To answer these questions, Manatt reviewed statutory, regulatory and subregulatory guidance issued by state Medicaid programs with respect to the 340B program. In certain instances when information was not readily available, Manatt also reached out to state officials for information. Manatt then compiled the results of this research into a chart, one for each state, and provided a copy of that chart to each state for review and revision, as necessary. Of the 50 states, 33 reviewed the charts and either revised or approved them.

Our survey found that 12 states continue to rely solely on the federal OPA Medicaid Exclusion File to identify 340B drugs that are billed to the Medicaid program. Twenty-two other states rely solely on claims-level identifiers. Still other states rely on a combination of the Medicaid Exclusion File and claims-level identifiers. And one state prohibits all covered entities from using 340B drugs for Medicaid beneficiaries, while another permits only family planning clinics to do so.

Our survey also found that there is significant inconsistency in how state Medicaid programs identify 340B drugs dispensed by contract pharmacies. Some states require contract pharmacies to use claims-level identifiers, although it can be difficult for a contract pharmacy to identify, at the point of sale, whether a claim is 340B-eligible. One state requires pharmacies to enroll under a separate National Provider Identifier (NPI) to bill 340B drugs, and excludes all drugs billed under that NPI from its rebate requests. Yet another state requires both covered entities and contract pharmacies to use a different provider number when billing for 340B drugs. In recognition of the challenges inherent in ensuring that 340B drugs dispensed by contract pharmacies are not subject to Medicaid rebates, almost two-thirds of all states prohibit 340B contract pharmacies altogether.

On the MCO front, our survey found that some states require MCOs to use the same mechanism as Medicaid fee-for-service to identify 340B drugs. Others simply require MCOs to have a methodology to identify 340B drug claims so that those claims are not included in the state’s rebate requests—but don’t specify what that methodology should be. And still other states do not have policies or guidance that address this issue at all, or advise covered entities to contact the MCOs directly.

Our survey also showed that states have largely implemented the federal mandate that state Medicaid programs reimburse for 340B drugs at actual acquisition cost, but that dispensing fees for 340B drugs vary widely, from a low of $2.32 (for certain prescriptions paid for by Montana Medicaid) to a high of $21.28 (for pharmacies in Alaska that are not located on Alaska’s road system). However, most states set dispensing fees for 340B drugs at between $10 and $11 per prescription.