N.Y. and Calif. 340B Pharmacies Get Reprieve From Medicaid Cuts

New York State and California’s nationally watched efforts to transfer their pharmacy programs for low-income individuals from Medicaid managed care to Medicaid fee for service (FFS)—both scheduled to take effect on April 1—have been temporarily placed on hold. The states are national trendsetters. The move to FFS is intended to reduce costs by giving the states more negotiating power with drug manufacturers. However, the move would create a negative side effect for 340B providers who depend on revenue from Medicaid managed care plans.  

Under Medicaid FFS, 340B providers must bill at drug acquisition cost. Under Medicaid managed care, they can bill plans for 340B-purchased drugs at higher negotiated rates and use the revenue to support patient services. Health centers, HIV/AIDS clinics, and other providers with large Medicaid patient populations are leading opposition to the pharmacy benefit transfers in both states.

In New York, state health officials said on Friday that the transfer of pharmacy benefits from Medicaid managed care to Medicaid FFS will be delayed for a month, to May 1, according to participants in a Feb. 26 state webinar during which the delayed was announced.

Gov. Andrew Cuomo’s (D) administration reportedly pushed the date back to allow time for passage of legislation to respond to 340B covered entities’ concerns. Entities say the carve out from Medicaid managed care will force them to close sites and eliminate services. As recently as Jan. 8, the state health department said it did not intend to halt the pharmacy benefit transfer.

“We are going to keep fighting this dreadful plan,” said Wendy Stark, Executive Director of New York City-based Callen-Lorde Community Health Center, which says it stands to lose nearly 14 percent of its budget due to the impending transfer. “We continue to gather data that suggests the carve-out will cost the state money, not save the state money. It will exacerbate health disparities in the middle of a global pandemic, and furthermore we have little confidence that the state is ready to implement this monumental policy change.”

Callen-Lorde said the state health department instructed Medicaid managed care plans to notify beneficiaries about the coming benefits transfer between March 1 and March 26.

In California, Gov. Gavin Newsom’s (D) executive order to transfer Medi-Cal (Medicaid) drug benefits from managed care to fee for service, pushed back last November from Jan. 1 to April 1, has been delayed indefinitely, the state health department announced Feb. 17.

Magellan Health, the vendor the state chose to manage the Medi-Cal FFS drug benefit, was recently bought by Centene Corp. in January. Centene subsidiaries run managed care plans and pharmacies that participate in Medi-Cal. “This transaction was unexpected and requires additional time for exploration of acceptable conflict avoidance protocols to ensure that there will be acceptable firewalls between the corporate entities to protect the pharmacy claims data of all Medi-Cal beneficiaries, and to protect other proprietary information,” the state health department said. It said it expected providing further information in May.

As in New York, California safety-net health care providers say the benefit transfer will cost them millions of dollars in revenues that they cannot afford to lose on 340B purchased drugs billed to Medicaid. California and New York’s governors and legislatures tried to win 340B providers’ support for the changes with promises of millions of dollars in supplemental state aid. In both states, providers have rejected the deals, pointing out that the extra aid would likely end after a year or two. The legislative fix under consideration in New York State reportedly involves adding a second year of supplemental state aid of about $100 million to affected 340B providers.

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