There has been a tremendous amount of activity in the 340B space which we expect to continue into 2021. By far the greatest threat to the 340B Program occurred this year when several manufacturers announced plans to restrict shipment of 340B purchased drugs to contract pharmacies. Readers may wish to review our August 21 blog for greater detail. “Manufacturers Create Chaos For the 340B Program,” written by Kristin Fox-Smith (Senior Vice President), Douglas E. Miller (PharmD, Senior Director) and William Wood (RPh, Senior Director).
As the end of the year approaches, none of the manufacturers have reversed their positions. Although,on October 30 Novartis informed 340B hospitals that it will stop providing 340B pricing starting November 16 to hospitals on drugs shipped to contract pharmacies that are more than 40 miles away from the hospitals’ parent sites. In addition, Novartis did take what could be considered a very minor step back when it announced that it would continue to provide “bill-to/ship-to” arrangements to grantees.
These manufacturer actions took place shortly after HRSA stated in July, “the 2010 contract pharmacy guidance is not legally enforceable and its authority to enforce certain 340B policies contained in guidance is limited unless there is a clear violation of the 340B statute.” Without question, this is what emboldened the manufacturers to take their actions. It appears that the manufacturers are relying on a recent statement by PhRMA: “We agree with this Administration’s recent statements regarding the rule of law and status of agency guidance. Unlike laws and regulations, agency guidance cannot impose any binding requirements on the public and lack the force and effect of law.”
In addition to the manufacturer actions against contract pharmacies, 340B hospitals face another year of deeply reduced Medicare drug reimbursement. The Trump administration announced that many hospitals’ Medicare Part B 2021 reimbursement for drugs bought through the 340B program will stay at the same deeply reduced rate it has been at since 2018—average sales price (ASP) minus 22.5 percent. The cuts will be made under the Medicare outpatient prospective payment (OPPS) rule. In what might be considered a minor victory, CMS decided not to use an alternative reimbursement methodology that would have further deepened the cuts next year to an effective rate of ASP minus 28.7 percent. The cuts will apply to all 340B hospitals paid under OPPS, except Medicare rural Sole Community Hospitals, children’s hospitals, and PPS-exempt cancer hospitals. Critical Access Hospitals are not impacted by the reductions as they are not paid under OPPS.
We all know that the 340B Program is a federal program. It was created in 1992 as part of the Veterans Health Care Act and codified as Section 340B of the Public Health Service Act. But how much do we know the roles played by the states?
State policymakers have authority to regulate, legislate, investigate and conduct other activities impacting 340B both directly and indirectly. State policymakers have historically focused on the relationship between Medicaid and 340B, but in the last few years there has been increased activity and interest in other areas.
States have normally focused their efforts on Medicaid Fee-for-Service (FFS) Duplicate Discount Prevention. The 340B statute protects manufacturers from having to pay both a 340B discount and a Medicaid FFS rebate on the same drug and directs HRSA to develop a mechanism to prevent Medicaid FFS duplicate discounts, resulting in the creation of the Medicaid Exclusion File (MEF).
Covered entities (CEs) are required to submit to HRSA all numbers they use to bill Medicaid FFS for 340B drugs for inclusion in the MEF and CEs must repay manufacturers if an inaccurate MEF listing results in a Medicaid FFS duplicate discount.
However, there are no federal rules regarding CEs’ legal obligations for duplicate discount prevention on 340B drugs given to Medicaid managed care organization (MCO) patients, including repayment to manufacturers. There is a federal rule requiringstates to take steps to prevent Medicaid MCO duplicate discounts, but it does not specify exactly how states should do so. CEs are expected to follow state rules for Medicaid MCO duplicate discount prevention. Prior to 2020, states were actively imposing rules to prevent duplicate discounts (e.g., identification of 340B claims with modifiers, mandatory carve outs).
No federal rule requires reimbursement of 340B Medicaid MCO drugs based on actual acquisition cost (AAC), so the state does not make up for lost rebates. According to the Kaiser Family Foundation, as of July 2017, over two-thirds of all Medicaid beneficiaries received their care through Medicaid MCOs. As a result, 340B comes up in both state financial considerations and policymaking. We expect continued debate to occur in 2021 over the financial benefit of using 340B drugs for Medicaid MCO beneficiaries at the state level.
In recent years, some states have considered or implemented policies that transfer, or have the potential to transfer, the 340B benefit from CEs to the state. One such policy involves the transfer of the pharmacy benefit from Medicaid MCOs to FFS. This policy has been considered or enacted in California, Michigan, New York, Kentucky, and West Virginia, and bears watching in 2021 for expansion to other states.
Recently, California Gov. Gavin Newsom’s administration announced delaying until April 1, 2021 its controversial transfer of Medicaid (Medi-Cal) MCO prescription drug benefits to Medi-Cal fee for service. The state health department announced the new April 1, 2021, effective date for the benefit transfer on Nov. 16, in a provider notice and a news release, citing “the ongoing challenges and constantly evolving health care landscape associated with the unprecedented COVID-19 public health emergency.” The news release said during the delay “prescription drugs services will continue to be delivered under the current system for both fee-for-service beneficiaries and those served by Medi-Cal managed care plans (MCP).”
In addition to policies designed to transfer Medicaid MCO to Medicaid FFS, several states have considered including state-level 340B reporting requirements in their budgets. This has occurred in Ohio, Wisconsin, and Vermont. We are not aware of any states that have enacted 340B reporting requirements to-date. Other state level actions or considerations have included discriminatory reimbursement practices, state regulation of PBMs, access to insulin, and state drug importation. Can we expect to see more? Count on it!
With the House and the White House under Democratic control for 2021 it is unlikely we will see any major attacks on the 340B program legislatively or by executive order, but there is bi-partisan support for increased program transparency and compliance oversight and CE’s should pay close attention to activity in these areas. With the Georgia Senate runoffs set for January 5, 2021, a Democratic win and control of the Senate may open the door for legislative actions to curtail the recent moves by manufacturers against contract pharmacy arrangements and to provide more protection for CEs. Legislative relief will be much more difficult if the Senate remains under Republican control.
Bottom line, 2021 promises to be full of activity in the 340B space!