United States District Court, Sacramento high-rise building
California 340B health centers' suit against the state's transfer of Medicaid managed care drug benefits to Medicaid fee for service is being heard at the Robert T. Matsui United States Courthouse in Sacramento.

California 340B Health Centers Blast CMS in Court Over its Role in State Medicaid Drug Benefit Transfer

California health centers asked a federal district judge in late April to deny the U.S. Centers for Medicare & Medicaid Services (CMS) motion to dismiss the health centers’ claims against CMS arising over the state’s transfer of Medicaid managed care drug benefits to Medicaid fee for service (FFS).

The health centers say the transfer illegally deprives them of millions of dollars of revenue on billings for 340B purchased drugs. They have sued to force the state Department of Health Care Services (DHCS) and CMS to reverse the drug benefit transfer.

CMS told the court in March it “has no authority to second-guess California’s decision.” Other states, it said, have “carve[d] out pharmaceutical services from their [Medicaid] MCO contracts and provide services directly on an FFS basis under the applicable payment terms set forth in their state plans, just as California has elected to do.”

In its April 22 response to CMS’s motion to dismiss, the health centers asked the court to hold CMS “accountable for failing to ensure that the State of California complied with federal law in administering its Medi-Cal program” with respect to the health centers.

Federal law sets specific reimbursement standards for health centers that the state is ignoring with CMS’s blessing, the health centers said. By asking the court to dismiss the claims against it, CMS is trying “to sweep its errors under the rug,” the health centers said.

New Judge Assigned to Case

U.S. District Judge Troy Nunley was assigned to the case on April 19. The original judge, John Mendez, 66, transitioned to senior status, reducing his caseload. Mendez was a Clinton appointee. Nunley was appointed in 2012 by former President Obama.

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