On January 7, California Gov. Gavin Newsom signed an executive order instructing Medi-Cal to transition all pharmacy services for Medi-Cal managed care to fee-for-service (FFS) by January 2021.  The directive is part of a broader effort to lower Medi-Cal spending on prescription drugs by allowing the State to take full control of negotiating and purchasing medications for Medi-Cal enrollees.

The mandate to transition all pharmacy services from managed care to FFS could impact billing and reimbursement requirements for 340B drugs.  Currently, reimbursement for 340B drugs billed to Medi-Cal managed care organizations (MCOs) is based on the pharmacy’s contract with the MCO plan.  Covered entities have the option to carve out Medi-Cal managed care from their 340B programs.  In contrast, covered entities are required to carve in Medi-Cal FFS and bill for those drugs at their 340B actual acquisition cost (AAC).  Transitioning pharmacy services from managed care to FFS could mean that covered entities will be forced to carve in all of their 340B retail pharmacy drugs and accept reimbursement at AAC.  (Pharmacy services typically do not include prescription drugs administered in the hospital or facility setting, so the executive order would not impact those drugs.)

Medi-Cal requirements for flagging 340B claims are different for FFS and MCO claims.  For FFS, covered entities must use the 08 modifier on retail claims.  This requirement is not currently applicable to MCO claims, although the State Medicaid agency recently issued new proposals that would change 340B claims identification policies for MCO drugs.  Once pharmacy services are transitioned to Medi-Cal FFS, the FFS claims identification requirements (including use of the 08 modifier at the point of sale) would apply to all 340B drugs dispensed by a retail pharmacy to Medi-Cal enrollees.

We will discuss these developments in more detail during our educational call next week.