On January 8, 2020, the Centers for Medicare & Medicaid Services (CMS) issued an Informational Bulletin (Bulletin) outlining CMS’s view of current “best practices” by states to avoid 340B duplicate discounts.  The Bulletin proposes some options that have been lauded by 340B advocates, while other options have raised concerns. 

Three of the best practices cited by CMS are likely to elicit strong support within the 340B provider community. 

• An option where states require that managed care organizations (MCOs) and prescription benefit managers (PBMs) use unique BIN/PCN combinations on plan identification cards to identify Medicaid patients.  Many Medicaid managed care plans and their PBMs use the same BINs and PCNs for their Medicaid and commercial lines of business.  This means that, if covered entities use any of these identifiers to exclude Medicaid claims from their 340B programs (i.e., if they decide to carve out rather than carve in), they will end up excluding non-Medicaid claims and depriving themselves of 340B revenue to which they are entitled.  This problem is avoided if the Medicaid plans have unique BIN/PCN combinations. 
• A confirmation that states should only use the Medicaid Exclusion Files (MEF) to exclude 340B fee-for-service (FFS) claims and that the MEF does not apply to claims submitted by covered entities to MCOs.  By making this confirmation, CMS is affirming longstanding HRSA policy.  Notwithstanding, several states, including Nevada, Pennsylvania, and Washington, are relying on the MEF to exclude 340B MCO claims from rebate invoicing.  Such reliance interferes with a covered entity’s ability to carve in MCO claims and carve out FFS, or vice versa, and effectively forces covered entities to carve out MCO drugs in the contract pharmacy arena.  It has also been associated with over-inclusion or under-inclusion of 340B claims in state rebate data.  This best practice should help discourage states from continuing to rely on the MEF for MCO claims.
• An option where states provide claims level and drug rebate data to manufacturers directly or through use of an independent third-party data company.  The use of independent third parties to address the duplicate discount prohibition opens significant opportunities to solve the MCO duplicate discount problem in the private sector.  For example, an independent contractor could form a clearinghouse by collecting rebate data from states, on the one hand, and 340B claims data from covered entities and contract pharmacies, on the other, and then excluding the latter from the former to protect against duplicate discounts.  Similar to Oregon’s approach to avoiding duplicate discounts, this option would permit covered entities to bypass Medicaid MCOs and provide 340B MCO claims data directly to a state contractor.

Other best practices identified by CMS already have a history of being strongly opposed by covered entities.  Their inclusion in the Bulletin will likely intensify such opposition. 

• An option where states use their state plan amendments (SPAs) to prohibit covered entities and/or contract pharmacies in the state from using 340B purchased drugs for some or all of the state’s Medicaid beneficiaries, commonly referred to as the “mandatory carve-out” option.  South Dakota and New Hampshire have already adopted the mandatory carve-out option.  340B advocates assert that this approach undermines the intent of the 340B program by depriving covered entities of their federal right to participate in 340B.  Delaware tried the same approach but, after successful advocacy by covered entities at both the federal and state levels, Delaware agreed to include in its SPA a carve-in option that is subject to both the covered entity’s request and Delaware’s approval.  A state’s right to collect rebates on MCO drugs did not exist prior to enactment of the Affordable Care Act in 2010.  When Congress expanded the rebate program to include MCO drugs, it explicitly limited that expansion to non-340B MCO drugs.  Covered entities argue that, by forcing covered entities to carve out Medicaid MCO drugs from their 340B programs, states would be circumventing this Congressional intent.
• An option where states require covered entities and contract pharmacies to use claim modifiers – for example, “20” and “08” for retail claims and the “UD” modifier for physician administered drugs – to identify 340B claims in real time.  Many 340B pharmacies, especially contract pharmacies, identify 340B claims retrospectively, so this real-time standard is impossible to meet.  Covered entities have historically resisted this duplicate discount model citing the significant administrative burden of re-adjudicating claims to flag claims’ 340B status in real time.   

Other options discussed in the Bulletin include: requiring a three-way agreement (covered entity, contract pharmacy and state Medicaid agency) to prevent duplicate discounts at contract pharmacies for Medicaid FFS claims; asking a covered entity to confirm in writing that it is using 340B drugs for Medicaid patients; and requiring MCOs to include claims identification provisions in their provider agreements to avoid duplicate discounts.

Powers will monitor how states, covered entities and other 340B stakeholders respond to the Bulletin.  It is unlikely that CMS would try to compel states to implement any of the best practices described in the Bulletin because, as sub-regulatory guidance, the Bulletin is unenforceable.  States, on the other hand, could seek to protect their use of a given best practice by enacting legislation or engaging in rulemaking mandating that practice.