September 13, 2012—The AIDS Healthcare Foundation (AHF) has asked a California court to invalidate a 2009 state law that bars safety-net providers from carving their 340B drug purchases out from Medi-Cal, the state’s Medicaid program.
In a July 26 complaint filed in state Superior Court in Los Angeles, AHF says the law violates the state constitution and state and federal Medicaid laws and regulations.[ms-protect-content id=”2799″] The foundation first challenged the law in federal court in 2009. A federal district judge dismissed that suit in 2010 but an appellate court reinstated it in part in 2011.
AHF operates a number of HIV/AIDS clinics in California that are enrolled in 340B. In July 2009, state lawmakers passed an emergency budget bill that, among other provisions, required covered entities to purchase all of their outpatient drugs for Medi-Cal beneficiaries through the 340B program. The AIDS group noted in its filing that it has historically opted to buy drugs for its Medi-Cal beneficiaries on the open market and receive regular Medi-Cal reimbursements rates, rather than buy the drugs through 340B and receive reduced reimbursement.
AHF argues that the law violates safety-net providers’ state constitutional guarantee of equal protection because it reduces their Medi-Cal drug reimbursement but not that of non-340B for-profit pharmacies. The payment reduction also violates state law and state and federal rules, it says, because the state implemented it without first obtaining approval from the Centers for Medicare and Medicaid Services (CMS); without first studying its impact on Medi-Cal beneficiaries; and without consulting 340B safety-net providers.
The group says it believes the law will cause safety-net providers to stop participating in Medi-Cal, to reduce or end pharmacy care services to Medi-Cal beneficiaries, or to withdraw from or not enroll in the 340B program.
On Aug. 22, Medi-Cal filed a motion requesting a 30-day extension of time to respond to AHF’s suit. The court has scheduled a Nov. 6 conference to set a date for a trial.
In motions it filed in the companion federal lawsuit, Medi-Cal denied AHF’s allegation that the carve-out ban discriminated against 340B providers in favor of retail pharmacy providers, noting that 340B providers receive advantages, such as tax-exempt status, that for-profit pharmacies do not receive, and that they voluntarily choose to participate in the 340B program to receive deep discounts “not received by the other pharmacy providers.”
In response to AHF’s assertion that the ability to retain savings from 340B drugs would help it fulfill its nonprofit mission, the state said, “while plaintiff’s objective to fulfill its stated nonprofit goal may be admirable, the Medi-Cal system is administered so as to ensure that as many beneficiaries as possible, not just those served by plaintiff, receive appropriate services.”
In June, Illinois lawmakers passed legislation that requires 340B-eligible health care providers to enroll in the drug discount program and at the same time forbids them from carving their 340B drug out from Medicaid.[/ms-protect-content]