June 14, 2016—A new Department of Health and Human Services Office of Inspector General analysis of the ways states identify 340B drugs given to Medicaid managed care organization patients concludes that claim-level methods “can help states more accurately identify 340B claims, and thus reduce the risk of duplicate discounts and foregone rebates associated with provider-level-methods.” [ms-protect-content id=”2799″]
The Centers for Medicare & Medicaid Services should require states to use claim-level methods but grant them flexibility in complying, OIG recommends in its new report. OIG also recommends that the Health Resources and Services Administration (1) clarify its guidance on preventing duplicate discounts for MCO drugs, (2) clarify in its final 340B program omnibus guidance that 340B covered entities must follow state instructions to facilitate states’ claim-level identification of 340B drugs, and (3) remove from the final 340B mega-guidance the agency’s proposal to create a new exclusion file for managed care because such a file would be unnecessary if CMS were to require states to use claim-level methods to identify 340B claims. The study did not try to determine whether any duplicate discounts for 340B-purchased MCO drugs had actually occurred.
CMS observed in written comments attached to the report that federal law does not contemplate requiring states to use claim-level methods to identify 340B claims. States can develop their own billing instructions as a way to comply with the requirement to prevent duplicate discounts, CMS said.
HRSA said in its written comments that while it concurs with OIG’s recommendation about clarifying its guidance on preventing duplicate discounts on MCO drugs, it is currently analyzing public comments on its proposed 340B mega-guidance and “will need to consider OIG’s specific recommendations … as we move forward to finalize the guidance.”
HRSA and CMS both have weighed in recently on preventing duplicate discounts on MCO drugs, with HRSA considering adopting rules to help states with provider-level identification and CMS allowing states to use either provider- or claims-level mechanisms.
The Affordable Care Act expanded the Medicaid rebate program to include MCO drugs. It directed states to collect Medicaid rebates on MCO drugs but prohibited states from requesting rebates on 340B MCO drugs to protect manufacturers from having to pay both a Medicaid rebate and a 340B discount for the same MCO drug. Since the ACA was enacted, different federal agencies, including CMS and HRSA, have issued guidance and regulations that address the need to prevent MCO duplicate discounts. However, the guidance and regulations have not prescribed a specific method for doing so and states have adopted a variety of ways.
OIG found that most of the states in its study use provider-level methods to identify 340B MCO claims. Provider-level methods identify covered entities that use 340B drugs for Medicaid patients, as opposed to claim-level methods that have covered entities identify individual claims as 340B. Some states told the OIG that they identify 340B providers themselves, while others rely on HRSA’s Medicaid Exclusion File. OIG expressed concern that provider-level methods may not accurately identify all 340B claims, creating a risk of duplicate discounts or foregone Medicaid rebates.
As OIG explains, “[p]rovider-level methods generally treat all drug claims from a given covered entity in the same way—that is, as either 340B claims or non-340B claims—and do not allow covered entities to differentiate among specific claims.” OIG noted that a covered entity, which has indicated that it uses 340B drugs for Medicaid patients, may not be able to do so in all instances because of manufacturer supply limitations or the 340B program’s orphan drug exclusion. In such instances, provider-level identification protects manufacturers from duplicate discounts, but could result in the state foregoing rebates to which it is entitled.
The OIG also noted that provider-level identification could be problematic if states do not correctly identify the providers. For example, the OIG noted that some states use HRSA’s exclusion file to identify 340B MCO claims, despite the fact that HRSA issued a policy release in December 2014 clarifying that the exclusion file was intended to be used for Medicaid fee-for-service only. For providers that do not use 340B for FFS claims, but do use 340B for MCO claims, a state’s reliance on the exclusion file could result in states requesting rebates on 340B MCO drugs.
In the preamble to the February 2016 covered outpatient drug final rule, CMS said that states should provide a way for covered entities to identify 340B MCO claims, which could include using the exclusion file. However, in the April 2016 Medicaid managed care final rule, CMS acknowledged that the exclusion file was intended to be used for Medicaid FFS only. Therefore, CMS seems to recognize that, if a state wants to use the exclusion file to help it identify 340B MCO claims, the state cannot simply assume that a covered entity’s carve-in/out decision in the existing exclusion file applies to both FFS and managed care.
In August 2015, HRSA issued its proposed mega-guidance that addressed a wide range of 340B issues, including Medicaid managed care. In the guidance, HRSA proposed creating an exclusion file or other mechanism to assist with the identification of 340B Medicaid MCO claims. HRSA’s proposal would allow a covered entity to make a different carve-in/out decision for each MCO and each entity site.
In the new report, OIG concluded that claim-level methods are more accurate than provider-level methods, largely because of concerns around states foregoing rebates to which they are entitled. The OIG found that states currently use a variety of claim-level methods to identify 340B MCO claims. Some states require covered entities to identify 340B MCO claims by submitting an indicator with the claims. These methods included submitting National Council for Prescription Drug Programs value 20 in the Submission Clarification Code field of a 340B retail pharmacy claim at the point of sale and submitting a UD-modifier for a 340B physician-administered drug claim. Other states allow covered entities to identify 340B claims after the claims were submitted. For example, Oregon instituted a mechanism that permits entities to send directly to Oregon’s rebate contractor a quarterly claims file for 340B Medicaid MCO drugs dispensed by the entities’ contract pharmacies. This allows the state to remove those claims from their rebate requests. The OIG did not prefer one claim-level method over another.
OIG also said states could require covered entities to use a separate provider identifier for 340B claims. Under such a requirement, a covered entity would use one National Provider Identifier or Medicaid billing number when billing 340B claims and another to bill non-340B claims. However, OIG did not indicate that any states are currently using this methodology. In addition, OIG noted that “covered entities’ use of multiple provider identifiers solely for the purpose of identifying individual 340B claims may create complications for State and Federal oversight activities,” although OIG did not elaborate on the potential complications.
OIG described alternatives to the provider-level and claim-level methods described above. These alternatives methods ensure that the utilization data that states receive from MCOs for rebate collection purposes do not include any 340B claims. OIG said that, for example, “[s]tates can require covered entities to use non-340B-purchased drugs for their Medicaid patients (i.e., ‘carve out’).” Groups representing covered entities have expressed concerns about such mandatory carve-outs, pointing out that they are contrary to both federal law and the intent of the 340B program. OIG said states also can delegate to MCOs responsibility for excluding 340B claims from the utilization reports.
In a June 2011 report, OIG recommended that CMS inform states of the multiple ways to identify 340B claims. In an August 2014 report, OIG recommended that CMS inform states of the option to identify 340B drugs at the claim level.
In the preamble to the covered outpatient drug final rule, CMS commented that states could use NCPDP standards as a way for covered entities to identify 340B MCO claims. In the Medicaid managed care final rule, CMS did not require a particular method of identifying 340B MCO claims. Under the rule, states must require MCOs to identify and exclude 340B claims from the utilization report they provide to states for Medicaid rebate collection purposes, or can instead require covered entities to submit 340B claims data directly to the state or the state’s claims processor before the state submits invoices for Medicaid rebates to manufacturers. CMS said that states should specify in their contracts with MCOs which tools MCOs can use to exclude 340B claims. The agency noted several potential tools that could be used by MCOs, including requiring covered entities to submit identifiers for 340B claims at the point of sale.
HRSA’s 2010 contract pharmacy guidance prohibits a covered entity from having its contract pharmacy dispense 340B drugs to Medicaid patients unless the entity, pharmacy, and state have an arrangement in place to prevent duplicate discounts and HRSA has been notified of the arrangement. OIG acknowledged in the report that the requirement applies to Medicaid FFS only, noting that the guidance was issued before the Medicaid rebate program was expanded to include managed care and that HRSA proposed in the mega-guidance to extend the requirement to Medicaid managed care. [/ms-protect-content]