Health Reform WK-EDGE HHS called on to step up its oversight of duplications in drug discount programs
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Friday, January 31, 2020

HHS called on to step up its oversight of duplications in drug discount programs

By Robert B. Barnett Jr., J.D.

Success in preventing duplicate discounts would require extensive coordination between state Medicaid programs and covered entities, as well as among HHS agencies.

HHS is generally doing a poor job of monitoring whether drug manufacturers are being subject to double-discounting—that is, being forced to offer drug discounts under two separate federal programs—contrary to federal requirements, a General Accounting Office (GAO) report has found. HHS is not carrying out oversight of the programs as required, and it is not even looking for the double-discounting in its program audits. GAO has recommended that HHS take various steps to prevent duplicate discounting (GAO Report, GAO-20-212, January 2020).

Background. The Medicaid Drug Rebate Program, established in 1990, requires drug manufacturers to pay rebates to states for outpatient drugs. Drug manufacturers cannot have their drugs approved through Medicaid without agreeing to participate in the program. Once the drug manufacturer agrees to participate in the program, the state Medicaid program is required to cover all of that manufacturer’s drugs. Originally, the Drug Rebate Program applied only to drugs the states paid for on a fee-for-service basis. The Affordable Care Act, however, extended coverage of the program to Medicaid managed care.

Meanwhile, the 340B Program, established in 1992, is voluntary for both covered entities and drug manufacturers. Covered entities get substantial drug discounts. Drug manufacturers must participate in the program if they want to receive Medicaid reimbursement. Covered entities are generally those health care providers servicing medically underserved populations.

Under federal rules, the states are prohibited from simultaneously obtaining rebates under both programs for the drug reimbursements they received through their Medicaid programs. GAO undertook this study to determine to what extent HHS was exercising its oversight responsibilities in preventing the double-discounting.

State oversight. States are supposed to know whether covered entities provided 340B drugs to Medicaid beneficiaries in order to exclude those drugs from the rebate requests they submit to manufacturers under the Medicaid Drug Rebate Program. Acknowledging the possibility of duplicate discounts, in 1993 CMS and the Health Resources and Services Administrator (HRSA) collaborated to create the Medicaid Exclusion File to help them identify 340B drugs provided to Medicaid fee-for-service beneficiaries. However well or poorly the Medicaid Exclusion File worked, it was not designed to track 340B drugs paid through Medicaid managed care, which became part of the rebate program through the ACA. Furthermore, while the covered entities were required to supply information for the Medicaid Exclusion File, no similar requirement was imposed on state Medicaid programs. Instead, CMS has given the states wide latitude to develop their own procedures for excluding 340B drugs.

Federal oversight. Beginning in 2012, HRSA began a systematic approach to auditing covered entities. The audits include an assessment of the covered entities’ 340B Program policies and procedures. To oversee the Medicaid Drug Rebate Program, CMS receives copies of the states’ Medicaid rebate requests each quarter. It has a system in place to review the information for errors.

Findings. The GAO found that the programs for tracking 340B drugs varied from state to state, and even within a state. Furthermore, the state programs were not always documented. The combination meant that drug discount duplicates were not often not being prevented. CMS oversight of those programs was limited, given the states’ freedom to develop their own procedures. CMS does not require the states to use the Medicaid Exclusion File to prevent duplicates. This lack of oversight, the GAO concluded, was inconsistent with federal standards. Furthermore, HRSA’s auditing procedures never assess a covered entities’ compliance with state policies and no assessment is undertaken of duplicate discounts in Medicaid managed care. Success in preventing duplicate discounts, the GAO concluded, requires extensive coordination between state Medicaid programs and covered entities, as well as among HHS agencies.

Recommendations. The GAO made three recommendations: (1) CMS should ensure that state Medicaid programs develop written policies and procedures designed to reduce duplicate discounts with 340B drugs; (2) HRSA should incorporate into its auditing process whether covered entities comply with the identification of 340B drugs; and (3) HRSA should require covered entities to work with drug manufacturers regarding repayment of duplicate discounts in Medicaid managed care.

Response. HHS agreed with the recommendations as they applied to CMS, but it disagreed with the recommendations as they applied to HRSA. HHS stated that it disagreed with the final two recommendations because HHS lacked guidance for covered entities related to Medicaid managed care claims. As a result, it said, it could not assess compliance in this area at this time.

MainStory: TopStory GAOReports 340BNews AgencyNews DrugNews MedicaidNews ProgramIntegrityNews NewsFeed

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