CMS Unveils Medicaid Block Grant Option, Ramifications for 340B Unclear

CMS Unveils Medicaid Block Grant Option, Ramifications for 340B Unclear

The Centers for Medicare & Medicaid Services (CMS) this morning invited state Medicaid directors to pilot test giving up open-ended federal Medicaid funding for able-bodied adults in exchange for a fixed federal allocation and more control over benefit design. Individuals with disabilities, those getting long-term care, children, and pregnant women would be excluded. Democratic lawmakers and a number of healthcare advocacy groups have criticized the initiative and it is expected to be challenged in court.

If the initiative takes flight, perhaps the biggest potential change for 340B stakeholders would be that states, for the first time, could have restrictive Medicaid prescription drug formularies. Under federal law, if drug manufacturers want their products covered by Medicaid, they must give states rebates on the states’ expenditures on those products. In exchange, state Medicaid programs must cover virtually all FDA-approved drugs (aka: covered outpatient drugs). Drug manufacturers also must sign a separate agreement with the federal government to charge qualified hospitals, health centers, and other providers 340B program ceiling prices (or less) for covered outpatient drugs, with the 340B prices pegged to Medicaid drug rebate percentages.

None of the documents CMS released today about its Healthy Adult Opportunity (HAO) Medicaid demonstration initiative mentions 340B. It could take additional regulations or guidance from CMS and/or the Health Resources and Services Administration (HRSA), which runs the 340B program, to clarify how actions taken under state pilot projects affect the definition of covered outpatient drugs for 340B drug discount purposes. In its Jan. 30 policy guidance letter to state Medicaid directors, CMS appears to say that rebates would be owed on drugs made available under a limited formulary, even though, technically, such drugs would not be covered under the state Medicaid plan and beneficiaries would not be regarded as eligible under the state plan. In a footnote, CMS also says that expenditures under the section of the Medicaid statute authorizing demonstration projects such as the block grant initiative “are treated as ‘expenditures under the State plan’ for other purposes as well (e.g., in calculating disproportionate state hospital (DSH) payments).”

“States would also be free to negotiate supplemental rebates with manufacturers in exchange for the inclusion of their drugs on the state’s formulary,” CMS said. “States wishing to continue to meet the coverage requirements of section 1927 of the Act would be free to do so.”

Politico Pro (subscription required) reported this afternoon that Oklahoma Gov. Kevin Stitt said his state will expand Medicaid coverage under the CMS guidance announced today.

In addition to its letter to state Medicaid directors, CMS issued this fact sheet and this press release about its block grant initiative.

Update: GAO’s 340B Duplicate Discount Report

Inside Health Policy (subscription required), Becker’s Hospital Review, and Fierce Healthcare, and ran articles since our last issue about the Government Accountability Office’s Jan. 27 report on CMS’ and HRSA’s policing of duplicate 340B discounts and Medicaid rebates on the same drugs.

“The Government Accountability Office’s latest 340B report—the second released this month—calls on the Health Resources and Services Administration and CMS to take new steps to prevent drug makers from paying duplicate discounts under Medicaid and the 340B drug discount program, but HHS and 340B hospitals say HRSA can’t legally follow GAO’s call for it to scrutinize states policies or make hospitals work on repayment of duplicate discounts in Medicaid managed care,” IHP reported.

Becker’s reported, “Lax oversight by the federal government is causing drugmakers to pay discounts for the same drug twice, according to a new report released this week from the U.S. Government Accountability Office. “In other words, they are giving a rebate to the state and a discount to hospitals participating in 340B.”

Fierce Healthcare reported (inaccurately) that GAO said, “the federal government isn’t doing a good job of determining if a hospital gets both 340B discounts and Medicaid rebates.” (We note that hospitals get the discounts and states and the federal government get the rebates.) “The report is sure to become the latest salvo in an entrenched lobbying war between the pharmaceutical industry and providers over the scope of the 340B program.”

In a Jan. 29 post on its website, law firm Baker Donelson covers GAO’s 340B duplicate discount report, its Jan. 10 recommendations for increased oversight of nonprofit hospitals’ participation in 340B, CMS’s Jan. 8 guidance offering “best practices” for states to prevent 340B duplicate discounts in Medicaid, and the MedPAC staff’s Jan. 17 findings about 340B hospitals’ spending on cancer drugs relative to other providers.

“Collectively, the recent activity highlights continued interest in oversight of providers in the 340B program and the possibility of a tightening of compliance standards, particularly for non-profit hospitals,” attorneys Jeff Davis and Tracy Weir write. “340B providers should be prepared for possible changes in guidance from states and through HRSA audit enforcement as a result of the CMS and GAO actions. In particular, non-profit hospitals should review the documentation they rely on to support eligibility to participate in the 340B program.”

Update: Ohio Legislation to Protect 340B Providers

WCMH-TV in Columbus, Ohio, ran a news segment on Jan. 29 about the introduction of bipartisan bills in the Ohio House and Senate to prohibit PBMs from imposing additional fees or reducing benefits to 340B providers. The station interviewed Logan Yoho, Pharmacy Director at Hopewell Health Centers in southern Ohio, about 340B’s importance to the center’s operations. “If 340B dried up altogether, we would have to close the pharmacy for sure and probably start closing clinics… because it is the only thing that keeps a lot of these programs running,” he said.

In Kentucky, meanwhile, the state hospital, primary care, and health plan associations are expressing concerns about a state Senate bill that “would require Kentucky’s Medicaid program to pay pharmacies directly for prescription drugs, bypassing the managed care companies that handle the majority of the state’s Medicaid business,” the Louisville Courier-Journal reports. Kentucky 340B covered entities fear ‘they could stand to lose millions of dollars in prescription drug discounts if the state switches to direct payments from Medicaid for prescription drugs,” the newspaper reported. The bill’s sponsor, State Sen. Max Wise (R), told the newspaper he is aware of those concerns and said he intends to work with the groups but wants to do something to overhaul a system he believes is tilted toward PBMs.

Tweets of Note

@340BHealth: The price for #insulin increased 64% between 2014 & 2019. #340B hospitals are using program savings to provide free or discounted insulin and other critical supplies to patients who are uninsured, underinsured, or have low incomes. Learn more: #Protect340B

@AIR340B: Community oncology clinics are critical for patients, especially those in rural areas where access to care is already limited. #340B-driven consolidation compounds the issue of restricted access, which harms patients, says @TNOncology ’s Dr. Jeff Patton:

@340BHealth: Members of Congress such as Senator @PattyMurray know one of the most important parts of #340B is that it doesn’t cost taxpayers any money.  #Protect340B

@FierceHealth: . @USGAO: Feds must do better to stop 340B, #Medicaid double dip.

@oncologyCOA: 340B Drug Discount Program: Oversight of the Intersection with the Medicaid Drug Rebate Program Needs Improvement. New report from @USGAO on broken #340B program

@HivHep: GAO: Feds have to improve oversight to stop hospitals from getting duplicate 340B, Medicaid discounts

@TedOkonCOA: GAO: Feds have to improve oversight to stop hospitals from getting duplicate 340B, Medicaid discounts via @FierceHealth @rking_19 “The federal government isn’t doing a good job of determining if a hospital gets both #340B discounts and Medicaid rebates.”

@TedOkonCOA: (Replying to self) Amazing how out-of-control the #340B program is in terms of no transparency & accountability in hospitals. And equally amazing the Congress is sitting on its hands in not fixing it, all while patients in need get ignored.

@AmberOwens18: Lax oversight causing duplicate 340B, Medicaid discounts, GAO finds

@AAPSonline: Almost half of spending on brand-name drugs goes to supply chain middlemen, e.g. PBMs, medical plans, and entities who are gaming 340B discounts, analysis finds.

@CCandisky: “It could force clinics to close their doors…” Lawmakers take aim at pharmacy middlemen

@mccarthyjohnb: (Retweeting @ccandisky with comment) Ohio Legislature working on passing bills to protect 340b providers from PBMs and insurance companies.

@vkoganosu: (Replying to @ccandisky) @ccandisky sorry this is not true: “the qualifying health-care providers must use the savings on patient care.” 1/2

@vkoganosu: In fact: “the 340B statute does not restrict how covered entities can use this revenue … HRSA does not have statutory authority to track how covered entities use this revenue. “  2/2

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