Hospital Group: GAO’s 340B Duplicate Discount Recommendations “Contrary to Federal Law”

Hospital Group: GAO’s 340B Duplicate Discount Recommendations “Contrary to Federal Law”

Hospital group 340B Health yesterday swung back hard against a congressional watchdog agency’s recommendations for stricter federal policing of 340B duplicate discounts, calling them “misguided, unworkable, and contrary to federal law.”

Yesterday, in its second major report on the 340B program this month, the Government Accountability Office (GAO) said “limitations” in federal oversight of 340B and the Medicaid Drug Rebate Program (MDRP) increase the risk that drug companies are being forced to pay 340B discounts and Medicaid rebates on the same drugs. GAO focused on duplicate discounts and rebates on drugs dispensed to Medicaid managed care (MCO) beneficiaries. It said the Health Resources and Services Administration (HRSA), which oversees 340B, should incorporate 340B covered entities’ compliance with state policies into its audits, and require covered entities to work with manufacturers regarding repayment of identified duplicate discounts in managed care.

340B Health President and CEO Maureen Testoni called those recommendations “incompatible with the statutory roles of states, federal agencies, and covered entities to prevent duplicate discounts for drugs covered by Medicaid and 340B.” She continued:

“The law is unambiguous in establishing that states have the responsibility to avoid collecting Medicaid rebates on 340B drugs used in Medicaid managed care. In cases where such duplicate discounts occur, it is the duty of the state to repay manufacturers. In its recent informational bulletin, the Centers for Medicare & Medicaid Services (CMS) recognized that, noting: ‘[S]tates are prohibited from billing manufacturers for Medicaid rebates for drugs dispensed to Medicaid patients that have already been discounted under the 340B Program.’”

Yet, the GAO recommends the federal Health Resources & Services Administration (HRSA) intervene in this process by auditing hospitals and other covered entities for compliance with state Medicaid managed care rules. The report recommends that safety-net providers be the ones to repay manufacturers for duplicate discounts when states wrongly accept Medicaid drug rebates for 340B drugs. That would penalize 340B providers for a state’s failure to follow its own policies and procedures or to ensure providers are informed of the state’s policies.”

Healthcare Dive wrote about the report today. We expect to have more news coverage, commentary, and reaction to about the report to share with you in our Thursday edition.

340B Attorney von Oehsen’s Take on GAO Report

Yesterday, we reached out to 340B expert William von Oehsen, Principal in the Powers Pyles Sutter & Verville law firm, for his take on GAO’s 340B duplicate discount recommendations. Here’s what he had to say:

You’re probably aware that Congress enacted two separate mechanisms for avoiding duplicate discounts. The first mechanism was enacted as part of the Veterans Health Care Act (VHCA) of 1992, when the Medicaid rebate program applied to fee-for-service (FFS) Medicaid only.1 The VHCA provisions place the responsibility on the covered entity to avoid duplicate discounts. Congress passed the second mechanism for avoiding duplicate discounts in 2010 as part of the Affordable Care Act (ACA), when it expanded the Medicaid rebate program to include managed care drugs but excluded 340B drugs dispensed by MCOs from the rebate program.

The plain meaning of the VHCA and ACA duplicate discount provisions is clear. The VHCA duplicate discount prohibition, which places the burden on the covered entity to avoid duplicate discounts, applies only to the class of drugs that are generally “subject to the payment of a rebate.”2 The (j)(1) exemption excludes 340B drugs dispensed by MCOs from the class of drugs subject to a rebate. Since the VHCA duplicate discount mechanism only applies to drugs that are subject to the payment of a rebate, the (j)(1) exemption precludes application of the VHCA mechanism to MCO drugs. The class of drugs to which the VHCA mechanism applies can never include 340B MCO drugs because the (j)(1) exemption has already removed such drugs from that class.

The Medicaid drug rebate program (MDRP) statute draws an important distinction between when MCO drugs and FFS drugs become subject to the payment of a rebate. Whereas FFS drugs are not rebate-eligible until the state makes a payment for the drug, MCO drugs are eligible for rebates as soon as they are dispensed to a Medicaid enrollee, regardless of when or whether the MCO pays for the drug.3 Correspondingly, the (j)(1) exemption makes 340B drugs dispensed by MCOs completely non-rebatable from the moment they are dispensed. Put another way, the state never has a right to a rebate on a 340B drug dispensed by a Medicaid MCO. In contrast, the FFS duplicate discount does not arise until the drug is billed to FFS Medicaid, at which point it is “subject to the payment of a rebate.”4 Thus, whereas the MCO duplicate discount arises when the 340B drug is “dispensed,” the FFS duplicate discount does not occur until the drug is billed and “subject to the payment of a rebate.”

As a result of the statutory distinction between when MCO drugs and FFS drugs become rebate-eligible, there is no logical way to apply the VHCA duplicate discount mechanism to MCO drugs because the (j)(1) exemption resolves the problem before the mechanism can be invoked. The (j)(1) exemption exempts 340B drugs dispensed by MCOs from rebates at the moment they are dispensed. Since the VHCA duplicate discount mechanism only applies to drugs “subject to the payment of a rebate,” the VHCA mechanism cannot apply to MCO drugs because the (j)(1) exemption excludes MCO drugs from the class of drugs subject to a rebate. Thus, the (j)(1) exemption precludes application of the VHCA duplicate discount mechanism to MCO drugs. By excluding 340B MCO drugs entirely from the class of drugs subject to a rebate, Congress plainly intended for these drugs to be treated separately from FFS drugs for purposes of duplicate discounts.

For the above reasons, federal law places the obligation on states to prevent duplicate discounts on MCO claims. State efforts to shift the obligation onto covered entities are contrary to the plain meaning of the 340B and MDRP statutes. Even if a manufacturer pays a rebate on a 340B drug billed to an MCO, the covered entity that purchased the drug would not be in violation of the 340B program’s duplicate discount prohibition. Instead, based on the plain language of the statute, the state received an unlawful rebate on the 340B drug. As a result, the state must repay the rebate that it should not have received. To conclude otherwise would both deny covered entities the 340B savings to that they are entitled under the statute and allow states to retain a rebate to which they have no right.

142 U.S.C. § 256b(a)(5)(A); 42 U.S.C. § 1396r-8(a)(5)(C).

2Section 340B(a)(5)(A) has two parts – one requiring the Secretary to establish a mechanism to avoid duplicate discounts and the other stating the general prohibition against Medicaid paying for a 340B drug “if the drug is subject to the payment of a rebate.” 42 U.S.C. § 256b(a)(5)(A). Because the purpose of the mechanism is “to ensure that covered entities comply with” the general prohibition, the mechanism also applies to drugs that are “subject to the payment of a rebate.” Id. Hence, the entire VHCA duplicate discount mechanism is limited to the class of drugs subject to MDRP rebates. 

3See 42 U.S.C. § 1927(b)(1)(A). Prior to the expansion of the MDRP to include managed care drugs, Section 1927(b)(1)(A) of the Social Security Act referred only to rebates for covered outpatient drugs for which payment was made directly under the state plan. After the MDRP was expanded to include managed care drugs, Section 1927(b)(1)(A) was amended to require manufacturers to provide a rebate for drugs dispensed to Medicaid enrollees of an MCO if the MCO is responsible for coverage of the drug. There is no corresponding statutory requirement that the MCO make a payment for the drug before it becomes rebatable. See, e.g., CMS Medicaid Drug Rebate Program Notice for Participating Drug Manufacturers, Release No. 100 (July 21, 2016).

4Note that once a covered entity notifies the state through the Medicaid Exclusion File that it is billing FFS Medicaid for a 340B drug, the state is no longer permitted to seek a rebate. 42 U.S.C. §256b(a)(5)(A)(ii).

More on the 340B-Medicaid Connection

Law firm Mannatt had a timely post yesterday in its Health Update newsletter about the interplay between state Medicaid programs and 340B. Mannatt recently held a webinar on the subject. Yesterday’s article is the first of two summarizing the webinar. Mannatt Partner Helen Pfister says in part one “we review the 340B and Medicaid Drug Rebate Programs, as well as examine the interplay between 340B and Medicaid.” Part two will have “information on the 340B program’s growing scope, insights into two of 340B’s long-standing vulnerabilities, key findings from our 50-state 340B survey and a look forward at what’s next.”

On Jan. 23, Foley Hoag law firm’s Medicaid & the Law blog summarized CMS’s Jan. 8 guidance to state Medicaid agencies on best practices for avoiding 340B duplicate discounts. “CMS and HRSA still need to do additional work to address the issue of duplicate discounts,” firm partner Thomas Barker wrote. “But the Informational Bulletin is a start to ensure that all parties comply with the requirements of the 340B statute.”

The Kaiser Family Foundation has a new issue brief on Pricing and Payment for Medicaid Prescription Drugs.

Ohio Lawmakers File Bills to Stop PBMs from Discriminating Against 340B Entities

Bipartisan legislation in the Ohio House and Senate aims to prohibit pharmacy benefit managers (PBMs) from “imposing additional fees or reducing reimbursements to Ohio 340B providers just because of their 340B status and [prevent] health insurance plans from carving out 340B providers,” bill sponsors said as a press conference today. The Columbus Dispatch covered the briefing.

“We cannot let PBMs or insurance companies divert money meant to help underserved patients access health services,” said State Rep. Randi Clites (D), one of the House bill’s two chief sponsors. “Many 340B providers use the program to fund services like dental, substance abuse treatment, or extended weekend hours. It is unacceptable to target the programs that the poorest Ohioans rely on.”

“Our legislation protects providers like community health centers who rely on their 340B savings to provide access to affordable and comprehensive care,” said State Rep. Susan Manchester (R), the bill’s other chief sponsor. “We cannot allow PBMs to continue discriminating against them just because of their status as a 340B provider.”

State Sen. Bob Hackett (R) is the Senate companion bill’s chief sponsor.

Drug Company Posts Limited Distribution Notice for Orphan Drug Ayvakit

Blueprint Medicines is limiting distribution of Ayvakit, an orphan drug indicated for treatment of a type of gastrointestinal tumor, the company said Jan. 24 on the HRSA Office of Pharmacy Affairs website.

What’s Driving Calls for 340B Transparency, and How Can Entities Prepare?

Sentry Data Systems Head of Industry Relations Lisa Scholz examines demands for more transparency in the 340B program through the prism of health care’s overall big picture in a two-part article in Pharmacy Times. Part one was published today. Part two, on “how transparency should go both ways and what covered entities can do to prepare for increased reporting requirements,” will run in March.

Tweets of Note

@USGAO: 340B Drug Discount Program: Oversight of the Intersection with the Medicaid Drug Rebate Program Needs Improvement

@TSlafsky: @USGAO just released a report about measures to prevent #340B duplicate discounts—its second report on #340B this month.

@TSlafsky: More on new @USGAO report. #340B legal experts also point out that even if a Rx company pays a rebate on a #340B drug billed to an MCO, it should be the state’s responsibility–not the covered entities–to repay the rebate that it should not have received.

@TSlafsky: Expect pushback on some of the findings & recommendations in

@USGAO’s report on #340B duplicate discounts. It appears that there is a misunderstanding on responsibility for policing duplicate discounts in MCO setting. It is clearly the state’s responsibility-not covered entities

@OHHouseDems: Rep. @RandiClites on prohibiting discriminatory PBM contracting against 340B programs: “ We all talk about providing low cost prescription drugs to patients. This is a simple way to do so.”

@AIR340B: When the #340B program works as intended, it helps improve public health outcomes. This is why we need to get the program back on track, so it works for patients everywhere. Click through #APatientsJourney to learn more about ways to #Fix340B:

@adapadvocacy: In case you missed our latest blog, “340B – Reply Hazy, Try Again” #340B

@MichelleNyman: The Government Accountability Office recently made 6 recommendations to prevent hospitals from taking advantage of 340B program. Worth a read.

@Eisner_Health: #DYK that 42% of #340B hospital patients are low income, uninsured, or under-insured? That’s why we need to #Protect340B. 🏥👨🏻‍⚕️🩺 #CHCs4CA #EisnerHealth

@Amorganrural: One in 3 rural adults report having problems paying their medical bills. This is a fact. 👇-This contributes greatly to rural hospitals closing across the US.

@MaureenTestoni: (Retweeting @Amorganrural with comment) This is another reason why #340B is critical. As #ruralhospitals work to help their patients access care, research has demonstrated 340B is helping them keep their doors open.

@AIR340B: Programs like #340B incentivize hospitals to acquire physician practices, but a new study by @NEMJ shows this type of consolidation can negatively impact patients. #WhoIsBenefiting? Read the study here: