New York
Two New York health centers are seeking a preliminary injunction against the state's shift of Medicaid managed care pharmacy benefits to Medicaid fee for service.

340B Health Centers Urge N.Y. State Trial Court to Block Medicaid Pharmacy Transfer

Two New York health centers have filed a new request with a state trial court to stop a recently launched state pharmacy benefit transfer, which the plaintiffs argue will cost providers millions in annual 340B revenue.

The April 26 state court filing by Heritage Health and Housing Inc. and Evergreen Health against the New York State Department of Health and Acting Health Commissioner James McDonald seeks a preliminary injunction on New York’s shift of the Medicaid managed care pharmacy benefits to Medicaid fee for service. That transition, which has been aggressively opposed by 340B providers and leaders in the state legislature, started April 1.

Under Medicaid FFS, providers can only bill for 340B-priced drugs at acquisition cost, while under the managed care system, 340B providers can bill plans at negotiated rates above their purchase costs.

The latest filing followed a March 30 ruling by Judge Margaret Chan against the provider’s previous request for a temporary restraining order to block the imminent start of the drug program’s shift. (In New York’s state court system, the lowest court of general jurisdiction is called the Supreme Court.) On April 7, the judge allowed both parties to withdraw the previous filings and permitted a new filing by April 26 just focused on an injunction request.

The latest filing for a preliminary injunction—unless the state “immediately” provides lost or expected lost revenue for 340B providers—countered the state’s assertions that New York would be more burdened by halting the imminent launch of the program than the plaintiffs would be by its implementation. The new filing also attempts to counter the state’s contention of a limited impact because only two of the state’s 75 federally qualified health centers (FQHCs) had sued over the program.  In the updated filing, the plaintiffs added affidavits from five other organizations detailing adverse effects of the transition.

“Tip of the Iceberg”

One of those organizations, The Chautauqua Center, an FQHC based in Dunkirk, NY, said in an affidavit that in 2022 it received $4.23 million in 340B revenue, 70% of which came from its care of Medicaid managed care patients. As a result of the pharmacy transition, it has implemented a hiring freeze and will have to consider staff and program cuts within four months if the funding is not restored.

“You’re seeing a reduction in staff…building projects are being put on hold, wait times are increasing, and that’s just the tip of the iceberg. We’re just a month into this,” Mike Lee, COO of Evergreen Health, based in Buffalo, said about provider responses to the new policy.

The latest filing asserted that the state’s plan “does not provide immediate relief for the 340B Program revenues that Plaintiffs and all similarly-situated 340B covered entities have lost, and will lose, as a result of Defendants’ rushed implementation of the Pharmacy Transition.”

The filing took aim at the state’s defense of the transition on the basis that it will generate savings for the Medicaid program by citing outside studies questioning any expected savings. For instance, it cited a 2020 Menges Group calculation that the state actually would lose $ 154 million in the first year of the transition and $1 .5 billion total over five years. Those losses were expected from costs arising from avoidable inpatient and emergency care.

“For these reasons, Plaintiffs respectfully submit that there is no rational basis justifying Defendants’ adverse treatment of New York’s safety-net providers and the patients who rely upon them for vital health care and medications,” said the filing.

Such effects violate the equal protection clauses of the federal and state constitutions, the providers wrote.

New York State Government’s Position

A spokesperson for the New York State Department of Health said that the agency does not comment on pending litigation. But the agency also does not appear to be backing down.  

“Governor Hochul’s FY 2024 budget makes the long-awaited transition back to a fee-for-service pharmacy system, which will create transparency in reimbursements to pharmacies, eliminate profiteering among health care intermediaries, leverage the state’s purchasing power to negotiate with drug manufacturers, streamline practitioner administration, and reduce confusion for the Medicaid recipients themselves when they pick up their medication,” Cadence Acquaviva, a spokesperson for the department wrote in an email response to questions on the lawsuit. “Moreover, the budget will reinvest a significant level of savings realized by this transition to support 340B providers so that they can continue serving the vulnerable populations relying on their services.” 

In 2022, Heritage generated approximately $3.1 million in 340B revenue and Evergreen generated $14 million in revenue from Medicaid managed care. Due to the transition, the providers have laid off employees and expect to begin cutting programs.

“As this progresses it’s going to get worse because you are going to have to make more substantial cuts,” Lee said. “For the last couple months, organizations have been cutting more administrative stuff. Folks are now getting to the tail end of payments for prescriptions they did in March…so now cash is drying up real quick.”

A hearing on the filing is expected in mid-June.

Hospitals Weigh In

Brian Conway, a spokesperson for the Greater New York Hospital Association, said in a written statement that the April 1 Medicaid managed care pharmacy carve-out “will wipe out critically important pharmacy savings that hospitals rely on through the 340B Drug Pricing Program (the carve-out will severely curtail hospital reimbursement for 340B drugs).”

GNYHA estimates the new policy will cut hospital revenues by approximately $525 million.

“This severe blow could not come at a worse time. Our hospitals’ immense fiscal challenges include Medicaid reimbursement rates that don’t come close to covering the cost of treating New Yorkers, rapidly rising labor costs driven by major workforce shortages, and entrenched inflation,” Conway said.

GNYHA is “evaluating various options to seek relief for our member hospitals,” he said.

The state legislature has approved supplemental one-year funding only for Ryan White Clinics that have lost 340B funding under the transition. But providers said it was unclear whether the legislature will appropriate such funding for other types of providers losing funding before the body’s scheduled adjournment in June.

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