November 12, 2010—A member of a new federal commission that will be advising Congress on Medicaid access and payment policies has suggested that it look into how state Medicaid programs might share 340B savings with safety-net providers enrolled in the outpatient drug discount program.
Richard Chambers, the chief executive of a California managed care organization (MCO) and a former Centers for Medicare and Medicaid (CMS) official, raised the subject during an Oct. 29 meeting of the Medicaid and CHIP Payment and Access Commission (MACPAC), which Congress created when it reauthorized the Children’s Health Insurance Program in 2009. The group has held only two organizational meetings thus far.
Frequent Topic at Conferences
According to the October meeting transcript, Chambers remarked during a background briefing on Medicaid payment for drugs that “I can’t go to a conference anymore where a [pharmacy benefit management company] is not selling how you can utilize or leverage 340B pricing for saving dollars.”
“Should the general Medicaid population, either in fee-for-service or managed care, somehow be benefitting … [and] is that not being looked at as a broader policy question for Medicaid?” he asked.
Patti Barnett, the MACPAC staff member who gave the presentation, responded that “this is another area that … a couple of states have actually mentioned.”
“They want to know more about it as well, and I think that would be a great area to look into,” she said.
Shared Savings Arrangements
Chambers appeared to be referring to arrangements, sometimes managed by PBMs, in which a government agency or other third-party payer reaches an agreement with a 340B-enrolled hospital or clinic to provide outpatient health services and related prescriptions to those the payer insures. The provider typically agrees to share a portion of its 340B savings with the payer in light of its increased business serving an expanded patient population.
Some drug company attorneys and commercial pharmacy groups contend that such arrangements stretch the bounds of the 340B program, which they say should benefit indigent and uninsured patients only. In response, safety-net providers note that the 340B program was established for their benefit, not that of patients directly, and that the revenues they gain from such arrangements help them advance their charity-care missions as envisioned by the 340B law.
The Maine Model
Safety Net Hospitals for Pharmaceutical Access (SNHPA), which represents more than 600 hospitals in the 340B program, has been urging state Medicaid programs to seek such “shared savings” arrangements with its members.
The basic concept underlying the approach is that, because 340B prices are on average 20 to 25 percent below Medicaid net payments (including rebates) for covered outpatient drugs, states can structure a 340B reimbursement program under which both the state and 340B providers benefit from the discounts provided under the 340B program.
Maine’s Medicaid agency, MaineCare, recently won federal approval for a shared-savings arrangement in which 340B hospitals bill it for outpatient drugs at usual and customary rates and it then settles hospital payments at 84 percent of the costs the hospitals report on their Medicare cost reports. The process results in the state and 340B hospitals sharing the savings associated with the hospitals’ purchase of drugs through the 340B program, with the hospitals getting paid on average above the actual cost for drugs administered or dispensed to Medicaid patients.
SNHPA has been promoting Maine’s approach as a win-win model for 340B hospitals and Medicaid.