Editor’s Note: Earlier this month, the Office of the Inspector General released a report titled “State Efforts to Exclude 340B Drugs from Medicaid Managed Care Rebates.” Based on interviews with states that pay for drugs through managed care organizations (MCOs) to determine how they identify 340B drug claims when collecting Medicaid rebates, the report assesses states’ methods and identifies potential vulnerabilities that could inhibit correct rebate collection. Key findings and conclusions are summarized below. Click here to download free a copy of the full OIG report.


The Office of the Inspector General (OIG) has released a report finding that the provider-level methods used by many states to identify 340B claims for drugs paid for by Medicaid managed care organizations may not accurately identify 340B drugs. The OIG recommends that the Centers for Medicare and Medicaid Services (CMS) and Health Resources and Services Administration (HRSA) require claims-level methods to be used instead. If adopted, this would be a significant change in the methods that the majority of states—and the 340B covered entities within those states—use to identify 340B drugs so that they may be excluded from the rebate requests state Medicaid programs submit to pharmaceutical manufacturers.

Under federal law, a drug may not be subject to both a 340B discount and a Medicaid rebate. This prohibition has become increasingly important since the Affordable Care Act (ACA) expanded the Medicaid drug rebate program to cover drugs paid for by MCOs (rather than just drugs paid for by Medicaid fee-for-service), particularly in light of the fact that the proportion of states paying for prescription drugs through MCOs has increased from less than one-quarter in 2011 to more than two-thirds in 2014.

The OIG report describes states’ methods for identifying 340B claims for MCO drugs, and assesses vulnerabilities in those methods. The report does not attempt to determine whether duplicate discounts for MCO drugs actually occurred.

To collect Medicaid rebates properly and prevent duplicate discounts, state Medicaid programs must ensure that the fee-for-service (FFS) and MCO utilization data they use to bill pharmaceutical manufacturers for rebates do not include drugs purchased under the 340B program. The methods used by states to identify 340B claims generally fall into two categories: (1) provider-level methods, which identify covered entities that use 340B drugs for Medicaid patients and exclude drug claims submitted by those entities from such utilization data, and (2) claims-level methods, which exclude individual drug claims that covered entities have explicitly identified as 340B claims from such utilization data.

Key Findings

Report findings include the following:

  • Most states use provider level-methods for identifying 340B claims for MCO drugs. 30 of the 35 states that report having methods for identifying 340B claims for MCO drugs use provider-level methods. Of those states, 22 reported using only provider-level methods, and eight reported using provider-level methods in conjunction with another type of method, such as a claims-level method.
  • Many states use the Medicaid exclusion file to identify 340B claims for MCO drugs despite HRSA guidance. Of the 30 states that report using provider-level methods, 24 report using HRSA’s Medicaid Exclusion File to identify whether or not covered entities use 340B drugs for MCO patients, and 17 report using only the Medicaid Exclusion File—despite the fact that in December 2014, HRSA issued a notice advising that the Medicaid Exclusion File is intended to help prevent duplicate discounts specifically for FFS drugs.
  • Provider-level methods may not accurately identify 340B claims. The report found that provider-level methods may not accurately identify 340B claims for some covered entities, because covered entities use 340B drugs for FFS patients but not for MCO patients (or vice versa), or because covered entities that generally submit 340B claims to MCOs may, for various reasons, sometimes submit non-340B claims.
  • Claims-level methods can improve accurate identification of 340B claims. The report found that, because claims-level methods allow covered entities to specifically identify some claims as 340B and others as non-340B, the use of claims-level methods can help states more accurately identify 340B claims.
  • Claims-level methods can be used in the contract pharmacy context. The report acknowledges that the structure of many contract pharmacy arrangements creates technical challenges to the use of claims-level 340B identifiers, because drugs dispensed by contract pharmacies are often determined to be 340B-eligible retroactively—i.e., after they have been dispensed to patients and billed. However, the report found that two states address this by requiring contract pharmacies to regularly submit spreadsheets identifying all previously-billed claims that were subsequently determined to be 340B-eligible, and that six other states require contract pharmacies to retroactively reverse and re-bill any claims retroactively determined to be 340B-eligible.

Report Conclusions

The report concludes that the methods used by states may not permit them to accurately identify 340B claims for MCO drugs, and makes the following recommendations:

  • CMS should require states to use claims-level methods to identify 340B drugs. Since claims-level methods can help states more accurately identify 340B claims and reduce the risk of duplicate discounts, the report recommends that CMS require states to use such methods, rather than relying on provider-level methods.
  • HRSA should clarify guidance on preventing duplicate discounts for MCO Drugs. Rather than establishing a new Medicaid Exclusion File to identify whether covered entities use 340B drugs for MCO patients (as contemplated by the proposed 340B Omnibus Rule released in August 2015), the report recommends that HRSA should require covered entities to follow state instructions to facilitate states’ claims-level identification of 340B drugs.