December 24 , 2009 – Safety Net Hospitals for Pharmaceutical Access (SNHPA), which represents about 500 hospitals in the 340B program, has asked Centers for Medicare & Medicaid (CMS) to help state Medicaid programs better understand billing rules for 340B participants.
SNHPA is also encouraging the government to make all the states aware of win-win arrangements developed in some states where Medicaid and 340B providers share savings from 340B discounts.December 24 , 2009 – Safety Net Hospitals for Pharmaceutical Access (SNHPA), which represents about 500 hospitals in the 340B program, has asked Centers for Medicare & Medicaid (CMS) to help state Medicaid programs better understand billing rules for 340B participants.
SNHPA made its request after conducting a survey earlier this year that showed there’s significant confusion among the states — and within the 340B hospital community — about how to bill for Medicaid drugs. Many 340B-covered entities have also expressed concern over efforts by some states to require providers to bill at acquisition cost, a requirement they say will drive some of them out of the discount program.
In a Nov. 12 meeting with a senior CMS official, SNHPA noted that many states have long misinterpreted the statutory duplicate discount prohibition, which bars states from seeking manufacturer rebates on drugs already discounted by the 340B program.
SNHPA told the CMS official that the prohibition is often mistakenly interpreted to require 340B-covered entities to pass through all of their discounts to the Medicaid program. The organization noted that the intention of the 340B law, as drafted by Congress, was to help stretch scarce resources for health care providers that serve the poor and underinsured.
SNHPA also explained that in 2000, the U.S. Health Resources and Services Administration (HRSA) revised a 1993 guidance that had directed covered entities to bill at actual acquisition cost (AAC). HRSA changed its position in the later guidance saying that covered entities should follow state billing and reimbursement policies. Nevertheless, many Medicaid officials still believe that AAC billing is the governing standard.
SNHPA survey shed light on ambiguities
SNHPA’s recently completed Medicaid billing survey report explores the various and often-ambiguous ways states communicate with 340B-covered entities when it comes to billing Medicaid. The association conducted the survey of its members this past spring to identify states that have given 340B providers flexibility in how they bill Medicaid for drugs.
SNHPA’s survey clearly indicates that the AAC billing standard is an exception, rather than the rule. According to the respondents, about 10 states allow providers to deviate from billing at AAC, while five states do not. Hospitals in 12 states gave conflicting answers, with some indicating that AAC billing has always been required, and others in the same state reporting that billing at something other than AAC has been permitted.
For instance, Saint Barnabas Health Care System in New Jersey, with three hospitals in the 340B program, first explored Medicaid billing when initiating a contract pharmacy arrangement several years ago, and approached the New Jersey Medicaid Office with the question.
“We were told informally by a state representative that since New Jersey reimburses hospital outpatients on a cost-to-charge ratio from the previous year, we didn’t need to worry about including the 340B drug cost with each outpatient charge,” said Bob Pellechio, a health system vice president who participated in the survey. “So we moved forward with the contracted pharmacy arrangement and our legal counsel was satisfied with our existing way of billing Medicaid outpatients.”
In Minnesota, meanwhile, University of Minnesota Medical Center’s Fairview Pharmacy Services is using an “alternate payment rate” for 340B-eligible drugs, reported survey respondent Jim Donnelly, Fairview’s business risk officer. “This alternate payment rate results in a value of savings that closely aligns with the rebates the state forgoes when we dispense 340B product,” he said.
This reflects the different approaches states take as they struggle to accommodate and navigate the government’s complex discount drug programs.
One reason state policies deviate from AAC billing is the fact that many billing systems cannot accommodate it. Another is that a state’s prospective payment and year-end settlement system for reimbursing hospitals would render billing at AAC meaningless.
OIG is probing billing policies
SNHPA has also briefed the Department of Health and Human Services’ Office of the Inspector General (OIG) about its survey results. The OIG is conducting its own investigation of both Medicaid and Medicare billing policies and practices for 340B providers. This is to advise Congress and HHS on current practices and prospective solutions.
At the same time, a number of state agencies, including the New York Office of the Medicaid Inspector General, are auditing 340B providers to try to recoup Medicaid overpayments in tight budget times.
SNHPA also gave CMS and the OIG a 340B Medicaid billing best practices summary that details approaches state Medicaid programs use for sharing savings with 340B providers. Examples included Medicaid payment of enhanced dispensing fees for 340B drugs billed at AAC; Medicaid payments for services provided by covered entities to expanded Medicaid patient populations where drugs are otherwise billed at AAC; and a below-retail AAC markup for product costs.
CMS said it’s studying the Medicaid billing issue and that it’s working with HRSA to try to reach consensus on how 340B providers should bill.
Some states ban carve-out option
One approach to billing Medicaid that several states are toying with is an all-out ban against carving Medicaid prescriptions out of the 340B program. The federal government created this option to help 340B providers work around the duplicate-discount problem. California became the first state to implement a carve-out prohibition this year.
Prohibiting the carve-out affords states two perceived advantages. First, the 340B price will reduce state drug expenditures because on average, the 340B discount is greater than the net Medicaid reimbursement after rebates. But states that are prohibiting the carve-out are also able to access the 340B discount up front, and are spared having to chase after manufacturers months later for rebates on the same drugs.
Instead of billing at normal Medicaid reimbursement rates for drugs purchased outside the 340B program under a carve-out, participating providers in the state must now use 340B-discounted drugs and bill at actual acquisition cost at all times.
An exception is made when such discounts are unavailable, or when a provider is billing Medicaid managed-care plans. The policy was enacted to boost funding for California’s financially struggling Medicaid program, and passed as state lawmakers sought to patch up a $26-billion budget deficit last July.
Hospitals Wary of Losing Savings
Some safety-net hospitals worry that other states will adopt similar, proposed policies — an approach they believe may drive providers out of the program. Several children’s hospitals in California with high Medicaid populations have said they’re reluctant to join the 340B program because of the state’s carve-out prohibition.
If forced to pass through most of their 340B discounts to the Medi-Cal program, they would be left with few savings from the program to meet the growing needs of indigent or uninsured patients.