June 16, 2011—State Medicaid agencies lack either the policies or the information that they need to oversee reimbursements for drugs bought under the 340B drug discount program, the Department of Health and Human Services Office of Inspector General (OIG) said in a new report issued late yesterday.
The report , which was written by the OIG’s Office of Evaluations and Inspections, found that many states are relying on outdated guidance from the Health Resources and Services Administration (HRSA) that 340B covered entities should bill at acquisition cost. The OIG points out that HRSA rescinded the guidance in the year 2000 and directed covered entities to refer instead to the states for applicable billing policies.
The 2000 HRSA guidance also gave 340B covered entities the option of carving out their Medicaid patients from the 340B program and it appears that most entities are choosing this option. The report found that only 42 percent of covered entities dispense 340B –purchased drugs to Medicaid patients. The OIG said “that states could work with covered entities to explore policy options that might result in savings for the states and covered entities.”
“The fact that close to 60 percent of safety net providers are choosing to carve out Medicaid patients from the program underscores the need for adequate Medicaid reimbursement for 340B covered entities,” said Ted Slafsky, executive director of Safety Net Hospitals for Pharmaceutical Access (SNHPA), an organization of over 700 hospitals in the 340B program. “If covered entities are required to bill at acquisition cost, it deters use of the program for Medicaid recipients and hurts both states and covered entities in serving our most vulnerable patient populations.”
Half of the 50 states told OIG they had written policies directing safety-net entities to bill 340B-purchased drugs at cost. The other half does not have written policies. Only one state, OIG said, “has a prepay edit to ensure accurate reimbursement specifically for 340B claims.” The report focused on drugs dispensed by pharmacies rather than on physician-administered drugs.
The OIG report found that seven of 25 states that have written policies directing covered entities to bill at AAC provide a higher dispensing fee for 340B-purchased drugs. The states reported they set a higher dispensing fee to motivate covered entities to dispense such drugs to Medicaid patients.
Given that 340B ceiling prices are considerably lower than states’ standard reimbursement rates, “states might save money (even when paying a higher dispensing fee) if more covered entities dispensed 340B-purchased drugs to Medicaid patients,” the OIG said.
The investigatory agency recommended that the Centers for Medicare and Medicaid Services (CMS) “direct states to create policies for safety-net entities billing Medicaid for 340B-purchased drugs and inform states about methods to identify reimbursements for such drugs,” according to a summary of the report. OIG also recommended that HRSA share 340B ceiling prices with states and work with CMS to improve the accuracy of the Medicaid Exclusion File, the database that states use to identify providers that dispense 340B-purchased drugs to Medicaid patients.
“Providing 340B ceiling prices to states will help them create prepay edits to oversee their reimbursements for 340B-purchased drugs,” the report said. It noted that although the Affordable Care Act (ACA) empowered HRSA to share 340B ceiling prices with covered entities, “HRSA would have to seek legislative authority to share 340B ceiling prices with states.”
States, it said, cannot create prepay edits to prevent paying more than safety-net entities’ costs for 340B-purchased drugs because they do not have access to 340B ceiling prices or safety-net entities’ costs. In its response to the OIG, HRSA Administrator Mary Wakefield said that while the agency “agrees that sharing 340B ceiling price calculations with the states may improve Medicaid reimbursement if utilized in a manner consistent with other OIG recommendations that reimbursement policy options be designed to result ‘in savings for both states and entities.'”
“Such reimbursement policies,” she continued, “should take into account the impact on safety-net providers participating in the 340B program and any additional reasonable costs associated with the patient populations served and costs of compliance with all 340B requirements.”
Finally, OIG reported, more than half of the states developed alternatives to the Medicaid Exclusion File. Ten states reported that they had to develop alternatives because of inaccurate data in the file.
OIG said states need to identify 340B claims from safety-net entities so the states can exclude the claims from Medicaid rebate requests to prevent subjecting drug manufacturers to duplicate discounts.
OIG said CMS concurred with its recommendations. To address them, it said CMS plans to
- inform states that they should incorporate 340B policies into their Medicaid state plans;
- inform states of the alternate methods of identifying 340B claims identified in the report;
- facilitate communication between HRSA and states;
- provide a list of state Medicaid pharmacy directors to HRSA; and
- instruct states to contact HRSA when they find errors in the Medicaid Exclusion File.
OIG said HRSA also concurred with its recommendations but did not specify how it would respond.
SNHPA President and General Counsel William von Oehsen praised the OIG for conducting the study. “Our organization has been encouraging CMS and HRSA to work more closely for over a decade now and we agree that there is a real need for more clarity when it comes to how covered entities should bill Medicaid and how the Medicaid should reimburse for 340B purchased drugs,” He said. “We look forward to working with government and states to promote shared savings models that are mutually beneficial.”