July 6, 2009 – Three states are considering steps that would limit Medicaid reimbursement paid to 340B-covered facilities at a time when many such facilities can ill afford cuts.
Two of those states, California and Utah, appear set to prohibit 340B-covered facilities from buying their Medicaid drugs outside the 340B program, often referred to as the “Medicaid carve-out.” Ohio, meanwhile, would pay 340B-covered entities a significantly higher dispensing fee for their more costly drugs in exchange for product reimbursement set at the covered entity’s actual costs. Such proposed Medicaid program policy shifts raise the question whether other states with tight budgets may follow suit.
Officials at two different California hospitals, who said they were not authorized to speak on behalf of their employers, estimated that the carve-out loss could cost each institution $400,000 annually. A pharmacist at a California oncology center told the Monitor it would likely cost her facility as much as $6 million a year. This would make it hard for the center to continue to serve the uninsured, she said.
Legislation adopted in mid-June by the California legislature’s Joint Budget Committee prohibits use of the Medicaid carve-out under the Medi-Cal fee-for-service program by requiring 340B covered entities to dispense only 340B drugs to Medi-Cal beneficiaries. The language, contained in the state’s fiscal 2010 budget, also would require that fee-for-service providers in the 340B program bill the state’s Medicaid program at no more than actual acquisition cost.
A covered entity would be permitted to bill at the higher Medi-Cal reimbursement of average wholesale price (AWP), minus 17 percent, only if it can prove that it could not obtain the drug at a 340B price. The legislation would not affect reimbursement of 340B drugs by Medi-Cal managed care organizations. If passed by the full legislature, the new policy would take effect when signed by the California governor.
In Utah, the Department of Health’s Division of Health Care Financing (DHCF) says it will soon implement a similar policy, with notices scheduled to go out to providers beginning July 1. In a May report to the Utah legislature, DHCF said that the new requirement that 340B providers bill at acquisition cost will not apply to drugs administered in the hospital outpatient setting where providers are reimbursed under a percentage-of-charges methodology.
Provisions in the Ohio fiscal 2010 budget would require the state Medicaid program to reimburse 340B-covered entities a $12 dispensing fee for drugs that cost the dispensing pharmacy $20 or more. The program would pay only acquisition cost or the prime vendor cost for the drug products dispensed. The dispensing fee for less expensive 340B drugs would continue to be $3.70, the general Medicaid fee-for-service dispensing fee and there would be no requirement to bill at actual acquisition cost for those drugs.
The federal 340B and Medicaid laws both prohibit states from billing drug manufacturers for Medicaid rebates on drugs already subject to 340B discounts. To mitigate the states’ loss of rebate revenue, 340B providers are required by most states to pass their discounts through to Medicaid by billing states at acquisition cost or by adjusting their billing and payment arrangements in other ways.
However, 340B-covered entities are allowed under federal law to “carve out” their Medicaid drugs from the 340B program to avoid billing restrictions that would otherwise apply. Under those circumstances, the entities purchase outside the 340B program those drugs dispensed or administered to Medicaid patients.
Golden State wants to save money – at providers’ expense
Although the threat of eliminating the Medicaid carve-out in California looms large for hospitals and clinics in the state, the language in the bill could still change or be eliminated when the budget hits the floors of both houses of the Legislature. Budget negotiations with Gov. Arnold Schwarzenegger have dragged out as the state tries to patch a $24-billion budget deficit hole. The state’s budget options were limited by a recent voter referendum that rejected a plan to reduce the deficit through additional taxes and bond offerings.
Medi-Cal estimates that the proposed carve-out ban would save the state $3.8 million and the federal government $3.8 million in fiscal 2009-2010 and a combined $10 million annually in subsequent fiscal years – all at the expense of 340B providers.
In fact, the actual losses for providers could be far higher. The Health Resources and Services Administration’s database of 340B providers currently lists 1,364 California healthcare facilities. In March 2006, the agency’s Medicaid exclusion database showed that 318 providers participating in Medi-Cal chose a Medicaid carve-out. Of those, one quarter was disproportionate-share hospitals. One-fifth was community health centers.
State seeks simpler, more efficient discount mechanism
With Medi-Cal now asking 340B-covered entities to buy their Medicaid drugs through 340B, the federal ban against requiring manufacturers to provide duplicate discounts will bar the state from collecting federal Medicaid rebates and state supplemental rebates on the same drugs.
Toby Douglas, chief deputy director of Health Care Programs at DHCS, said the change in the state’s long-standing policy will align costs up front, calling it “a cleaner way of doing the process.” This way, he said, savings will be realized from 340B discounts at the time the claim is paid, instead of forcing the state to “chase manufacturers for rebates” up to six months later.
A fact sheet the agency gave state lawmakers said the change will also minimize manufacturer rebate disputes. All this, the agency predicted, will “simplify the management of the rebate program.”
Ohio community health centers protest
The changes included in the Ohio budget came after Ohio Governor Ted Strickland announced plans to administratively take the Medicaid drug benefit out of Ohio Medicaid managed care, making all pharmacy benefits fee-for-service. Ohio providers believe that change would mean reduced reimbursement for all pharmacy providers, and particularly for 340B providers that will be forced to bill at actual acquisition cost for 340B drugs. Pharmacy providers, including 340B providers, currently bill managed-care organizations at higher rates.
The Ohio Association of Community Health Centers have asked legislators on the budget committees to include an enhanced dispensing fee in the budget for 340B providers to offset the pending revenue loss from the pharmacy benefit carve-out.
Utah seeks waiver from CMS
Utah says its plan to make Medicaid patients obtain their drugs at 340B-covered pharmacies requires a federal Freedom of Choice Medicaid waiver, as well as an additional State Plan Amendment. State officials are currently preparing waiver language for submission to CMS. As in California, the planned Utah administrative requirement would eliminate the carve-out option for 340B pharmacies. (See Monitor April, 2008).