On June 8, 2016, OIG issued a report in which it recommended that CMS require states to use a claim-level method to identify 340B claims in order to prevent duplicate discounts for drugs and unclaimed rebates to which states are entitled (the “OIG Report”).  CMS did not concur with OIG’s recommendation.  OIG also recommended that the Health Resources and Services Administration (HRSA), which is responsible for administering the 340B Drug Pricing Program (the “340B Program”), clarify its existing guidance on preventing duplicate manufacturer discounts in order to reflect the additional recommended requirement.  Unlike CMS, however, HRSA concurred with OIG’s recommendation but noted that it would need to review public comments before implementing the recommendation.

The Medicaid Drug Rebate Program (the “Rebate Program”) in essence requires manufacturers to pay rebates to states on covered outpatient drugs paid for by Medicaid.  The Rebate Program initially only applied to FFS drugs, but the Affordable Care Act expanded the requirement on manufacturers to pay rebates to states for drugs paid for by Medicaid managed care organizations (MCOs) as well.  In order to collect their rebates owed, states must determine the total number of units of each drug paid by Medicaid, including MCOs, for each quarter and send invoices to the manufacturers. 

The 340B Program requires manufacturers to discount drugs to certain eligible health care providers who have registered with HRSA (“covered entities”).  Covered entities then bill their patients’ insurance companies, which may include Medicaid, for the 340B drugs that they dispense or administer.  The Rebate Program and 340B Program can result in duplicate discounts if manufacturers discount the drugs to covered entities initially under the 340B Program and then pay the states a rebate on the same drugs when the states submit invoices later under the Rebate Program.

According to OIG, the states’ role is important in preventing duplicate payments because they can identify 340B claims in their data and exclude them before they send the Rebate Program rebate invoices to manufacturers.   States identify 340B drugs in FFS claims because the claims are submitted directly by providers to the states, and states can use HRSA’s exclusion file to identify 340B drugs FFS claims.  However, with respect to MCO claims, providers submit claims for MCO drugs to the MCOs, and in turn, states calculate rebates owed from drug claims data submitted by MCOs.  In December 2014, HRSA issued a notice stating that its exclusion file is only for identifying 340B drugs in FFS claims and not in MCO claims.

According to the OIG Report, states generally use one of two methods, or a combination of these two methods to identify 340B drugs in MCO claims.   The first general method is a provider-level method whereby the states identify covered entities and then exclude drug claims billed by those covered entities from the data.  This first method, however, is not as accurate because it designates all of a covered entities’ claims as either 340B claims or non-340B claims, but a covered entity may submit both 340B drug claims and non-340B drug claims.  The second general method is a claims-level method whereby the states exclude individual drug claims that covered entities have identified as 340B claims.  According to OIG, this method is more accurate because it is claim-specific and accounts for the fact that a covered entity may submit both 340B and non-340B drug claims.

Accordingly, OIG recommends that CMS should require states to use claims-level methods to identify 340B drugs, but suggests that CMS could grant states flexibility in complying with the requirement.  In this way, states could require spreadsheets to identify 340B claims, or states could use claims-level indicators to identify 340B claims.  CMS did not concur with OIG because CMS does not believe that the statute contemplates requiring claims-level identification of 340B drug claims.  Rather, according to CMS, states are afforded the opportunity to develop their own methods for complying with the requirement to prevent duplicate manufacturer drug discounts.  In August 2015, HRSA issued a proposed rule in which it sought public comments on creating a new exclusion file for MCO patients of covered entities to better identify MCO drug claims.  HRSA concurred with OIG’s recommendation but noted that it needs to analyze OIG’s recommendation in conjunction with its review of public comments received in response to its proposal.

Please click here to access the OIG Report. 

Reporter, Kate Stern, Atlanta, +1 404 572 4661, kstern@kslaw.com.