November 10, 2010—Federal health officials have given Maine’s Medicaid agency the go-ahead to exempt all but a handful of the state’s hospitals from reporting National Drug Codes (NDCs) for physician-administered outpatient drugs. Under the arrangement, none of the state’s 340B hospitals is required to change billing and payment for such drugs.
The decision, which the Centers for Medicare and Medicaid Services’ (CMS) Boston office conveyed in a Sept. 21 letter to MaineCare, validates the state agency’s response to an October 2009 CMS transmittal to states outlining the terms under which states may relieve hospitals, including those enrolled in 340B, of the NDC reporting burden without risking the loss of federal Medicaid matching funds.
“Our Hospitals Will Be Happy”
“MaineCare was happy and our hospitals will be happy” with CMS’s determination that the state’s model comports with all applicable regulations, says Derrick. J. Grant of the state Medicaid office. “Our biggest concern was staying within CMS’s regulations without being overly burdensome on our hospitals.”
He says MaineCare considers the matter closed and, in fact, is configuring a new claims system based on the CMS transmittal. “Unless we hear otherwise, this is what we’re doing,” Grant says. “This can’t drag on forever.”
Safety-net hospital advocates hailed CMS’s blessing of Maine’s approach a major victory, adding that it paves the way for other states to follow Maine’s example. For a brief time earlier this year, Grant says, it appeared that CMS was going to disapprove the method.
Safety Net Hospitals for Pharmaceutical Access (SNHPA), which represents hospitals enrolled in the 340B drug discount program, was “deeply concerned that CMS misunderstood the meaning of its own transmittal and would insist that the federal exemption to the NDC reporting requirement only applied where hospitals billed for physician administered drugs at the actual acquisition cost of the drugs,” says Elisabeth Doyle, an attorney representing SNHPA. “We’re hopeful that this development will provide other Medicaid agencies with a green light to implement similar models, which will benefit both the state Medicaid agency and safety net providers.”
Controversial Regulations
In mid-2007, CMS issued controversial regulations implementing a section of the Deficit Reduction Act (DRA) of 2005 aimed at prodding states to do a better job of collecting manufacturer rebates on infusion drugs, injectables and other drugs paid for by Medicaid. The rules required states to collect NDC data on all single-source physician-administered drugs billed to Medicaid and on the 20 highest-dollar-volume multi-source drugs. Despite strong opposition by hospitals, CMS applied the requirement not only to drugs used in physicians’ offices but to hospital outpatient drugs as well.
340B hospitals complained forcefully, but to no avail, that most of them lacked electronic billing systems capable of collecting, tracking and submitting NDC codes for clinic drugs billed to Medicaid. Compliance, they said, would be expensive, labor-intensive, and in some cases impossible. The NDC reporting requirements took effect on Jan. 1, 2008.
For 340B hospitals, the regulations were problematic for another reason. They created a duplicate discount problem whereby manufacturers would be placed at risk of giving 340B discounts and Medicaid rebates on the same drugs. In general, 340B providers are required to pass their discounts through to Medicaid or forego the discounts entirely to avoid the duplicate discount problem.
Hospitals Filed Suit
SNHPA and the University Medical Center of Southern Nevada (UMCNV), one of the nation’s largest providers of charity care, sued CMS in August 2008 to overturn the requirement. The suit also challenged the legality of CMS’s determination that 340B hospitals could be exempted from the data-collection rule only if they billed Medicaid for no more than the physician-administered drugs’ actual acquisition cost.
CMS reached a settlement with the association and the hospital in October 2009 and sent letters to state Medicaid officials acknowledging that hospital outpatient drugs are exempt from federal manufacturer rebates as long as the hospital bills Medicaid for the drugs at no more than the “hospital’s purchasing costs for covered outpatient drugs (as determined under the state plan).”
State Acts on Transmittal
Maine was one of the first states to take advantage of the transmittal. In early December 2009, MaineCare notified hospitals that it would require them to report NDC data on only 60 physician-administered drugs listed by the state and would not require NDC reporting at all on drugs purchased through the 340B program.
MaineCare also said it would let 340B hospitals bill at their usual and customary rates and use a year-end reconciliation process that settles hospital payments at 84 percent of the costs reported on their Medicare cost reports. The agency said it viewed this process, required of all hospitals, as satisfying the condition of “billing at purchasing costs” necessary for hospital exemptions from the NDC reporting mandate. According to several Maine hospitals participating in the 340B program, reimbursement at 84 percent of hospital costs is above 340B acquisition cost for most drugs.
MaineCare next sent CMS a letter in April 2010 seeking clarification on two points: (1) was it correct that critical access hospitals (CAHs) not participating in 340B (which are reimbursed at 109 percent of allowable outpatient costs) were the only hospitals subject to NDC reporting (because the state reimburses the others at below-cost rates), and (2) are non-exempt hospitals required to report all NDCs or just a set amount that represents the bulk of Medicaid rebates?
In its Sept. 21 response, CMS affirmed that the only Maine hospitals subject to NDC reporting were CAHs that do not participate in 340B, and that they must report NDCs for all single-source drugs and for at least the top 20 multiple-source drugs as determined by the U.S. Department of Health and Human Services, most recently on Jan. 1, 2010.
Outreach to CAHs
Grant says he has no way to predict whether CMS’s decision will encourage the state’s CAH’s to enroll in 340B. “We’re in the process of contacting them to see if they’re receptive to enrolling,” he says.
According to the federal Office of Pharmacy Affairs (OPA), seven Maine CAH’s enrolled in the drug discount program during this summer’s two-month rolling admission period for hospitals added to the program under health care reform. CAH’s were among the types of hospitals granted eligibility for 340B.
Grant says other state Medicaid officials interested in learning more about his state’s model can contact him at derrick.grant@maine.gov.