A California benefits identification card
CMS told a judge last week it "has no authority to second-guess California’s decision" to transfer Medicaid managed care drug benefits to Medicaid fee for service.

CMS Asks Judge to Dismiss 340B Health Centers’ Claims in Suit Over Medicaid Drug Benefits Transfer

The U.S. Centers for Medicare & Medicaid Services (CMS) asked a federal district judge in Sacramento last week to dismiss California health centers’ claims for relief over CMS’s approval of 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.

“CMS has no authority to second-guess California’s decision,” the agency said in a March 10 brief. Missouri, Tennessee, West Virginia, and Wisconsin “carve 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.”

A 2016 CMS regulation requires state Medicaid agencies under Medicaid FFS to pay no more than acquisition cost plus a dispensing fee for 340B purchased drugs. 340B entities can bill Medicaid MCOs at higher rates. Because 340B health centers and other grantee covered entities serve high volumes of Medicaid beneficiaries, they rely heavily on revenue from billing Medicaid MCOs for 340B drugs. As of 2019, 69% of Medicaid beneficiaries were enrolled in managed care plans nationally, according to the Kaiser Family Foundation.

California is one of two high-profile states that recently shifted Medicaid MCO drug benefits into Medicaid FFS as a cost-savings move. New York state is the other. The transfer in New York has been put on hold until next year. Grantee entity groups there are lobbying the legislature and state health department to reverse the benefit transfer.

Community Health Center Alliance for Patient Access (CHCAPA), which represents 31 California federally qualified health centers, is suing to force the state Department of Health Care Services (DHCS) and CMS to reverse the state Medicaid (Medi-Cal) drug benefit transfer.

DHCS told the court last month that the drug benefit transfer does not violate federal law and does not deprive the state’s 340B health centers “of any reimbursement or revenue to which they are entitled under law.”

CHCPA is due to file its reply to the state’s arguments tomorrow.

According to other papers that CMS filed with the court last week, there will be a hearing on June 7 on its motion to dismiss CHCAPA’s claims.

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