States are inconsistently identifying 340B drug claims in a way that is causing them to forego proper drug rebates and receive improper duplicate drug discounts. A study, conducted by the HHS Office of Inspector General (OIG) to examine why manufacturers are sometimes paying too much in rebates and why states are sometime paying too much for Medicaid managed care organization (MCO) drugs, revealed that states identification methods are not accurately classifying all individual 340B drug claims. The OIG recommended that states transition from provider-level methods of identifying 340B drug claims to claim-level identification methods to improve the accuracy of claim identification (OIG Report, OEI-05-14-00430, June 8, 2016).
Rebates. Under the Medicaid Drug Rebate Program, in order for drugs to be eligible for federal financial participation through Medicaid, manufacturers must pay rebates to states when drugs are dispensed to Medicaid beneficiaries and paid for by Medicaid. Although the program was initially restricted to rebates for fee-for-service (FFS) drugs, the Patient Protection and Affordable Care Act (ACA) (P.L.111-148) extended the program to Medicaid MCO drugs. Because a growing proportion of drugs paid for by Medicaid are paid through MCOs, state collection of drug rebates for MCO drugs has become increasingly important.
Duplication. The 340B drug program—which enables certain health care providers to purchase drugs at a discount—impacts the Medicaid MCO rebates because of a prohibition on duplicate discounts. Duplicate discounts occur when a manufacturer sells a drug with 340B pricing and then also pays a Medicaid rebate. Thus, to properly collect Medicaid rebates, without running the risk of improper duplication, states must identify and exclude 340B claims. If states are not accurate in their identification of those 340B claims, they run the risk of foregoing rebates to which they would otherwise be entitled. Manufacturers are also impacted by poor 340B claim identification, because improper identification can lead to duplicate rebates and rebate disputes.
Claim identification. Two of the methods that states can use to identify and prevent duplication of 340B claims include provider-level and claim-level identification. Under a provider-level method, states identify covered entities that use 340B-purchased drugs for their Medicaid patients and then exclude drug claims billed by those entities. The most common provider-level method is the Health Resources and Services Administration (HRSA) Medicaid Exclusion File (MEF). However, HRSA issued guidance in 2014 warning states that the MEF is designed to identify duplicate discounts specifically for fee-for-service (FFS) claims, not MCO claims. The second method—known as claim-level—is more specific because it excludes individual drug claims that covered entities explicitly identify as 340B claims.
States. The OIG review analyzed the identification methods of 37 states and found that 35 reported having methods for identifying 340B claims for MCO drugs. While 30 states reported using provider-level methods in some capacity, 22 of those 30 states reported using only provider-level methods for either all MCO drugs or a portion of MCO drugs. Out of those 30 provider-level method states, 24 states used the MEF in some capacity and 17 states used only the MEF for MCO drugs. Claim-level methods were used, in some capacity by 14 of the 35 states and nine of those 14 states used only claim-level methods for a segment of their MCO drugs.
Methods. The OIG determined that provider-level methods are not accurate for 340B drug identification purposes because those methods treat all drug claims from a given covered entity in the same way, regardless of whether they are 340B claims or not. As a result, provider-level methods, do not easily allow entities to distinguish specific claims. The OIG determined that states can be more accurate with claim-level identification because the method allows for differentiation among specific claims—for example, between 340B and non-340B claims.
Recommendations. The OIG recommended that CMS require states to use claim-level methods to identify 340B drug claims. Additionally, the OIG recommended that HRSA clarify, through guidance, that 340B covered entities must follow state instructions to facilitate states’ claim-level identification of 340B-purchased drugs. CMS did not agree with the first recommendation, noting that there is no statutory basis for such a requirement. However, HRSA concurred with the recommendation to clarify its guidance on the prevention of duplicate discounts.
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