How State Medicaid Programs are Managing Prescription Drug Costs: Results from a State Medicaid Pharmacy Survey for State Fiscal Years 2019 and 2020

State Strategies to Manage 340B Programs

As a condition of participation in the MDRP, manufacturers also must participate in the federal 340B program. The 340B program offers discounted drugs to certain safety net providers (known as covered entities, or CEs) that serve vulnerable or underserved populations, including Medicaid beneficiaries, in order to “stretch scarce federal resources as far as possible.”1,2 Additionally, CEs sometimes elect to contract with non-affiliated retail pharmacies to provide pharmacy services to their patients. These are known as contract pharmacy arrangements.

States are prohibited from invoicing manufacturers for Medicaid rebates when a drug is acquired through the 340B program; this is known as the “duplicate discount” prohibition. While it is the responsibility of the Medicaid agency to ensure that 340B claims are excluded from rebate billings to manufacturers, it is the responsibility of the CE to ensure that claims are properly identified during claims billing, including claims billed by contract pharmacies. The use of contract pharmacies has come under scrutiny for complicating the oversight of duplicate discounts.3 States have struggled to ensure compliance with the duplicate discount prohibition and, with the federal government and the National Council for Prescription Drug Programs (NCPDP), have developed processes to identify 340B claims both at the claims level and administrative level. On January 8, 2020, CMS issued an informational bulletin outlining best practices for states to consider employing to avoid duplicate discounts.4

340B Management Strategies to Avoid Duplicate Discounts

Most states report multiple strategies to manage 340B claims from covered entities (CEs). Most commonly, states rely on the Medicaid Exclusion File published by the federal government to exclude claims from CEs who have indicated that they are participating in the Medicaid program (Table 11 and Appendix Table 11). Many states also prohibit the use of contract pharmacies in FFS (36 states) or managed care (19 states) to fill prescriptions. States also report use of claims indicators to flag 340B claims when they are submitted to the Medicaid agency for payment (31 states). Fewer states reported carving out 340B entities entirely from managed care (6 states) or FFS (2 states).5 Despite the reported challenges of the 340B program, only five states (California, Michigan, Mississippi, New Mexico, and Rhode Island) reported issues with duplicate discounts on this survey.

Table 11:  340B Management Strategies
Strategy # of States
Use of the Medicaid Exclusion File (MEF) 38
Prohibition on contract pharmacies in FFS 36
Use of NCPDP fields* to identify 340B claims 31
Prohibition on contract pharmacies in managed care 18
340B entities not allowed to carve into managed care 5
Use of medical claims modifiers to identify 340B claims 7
340B entities not allowed to carve into FFS 2
NOTES: *NCPDP fields allow pharmacies to indicate on a claim that a drug was purchased through the 340B program
SOURCE: 2019 KFF and Health Management Associates (HMA) survey of Medicaid officials in 50 states and DC, April 2020, and NCPDP Reference Guide.6
340B Reimbursement Models

Most states do not have specific requirements for 340B dispensing fees or MCO payment levels for 340B claims. Federal rules issued in 2016 require that payments to pharmacies for drug costs be based on the actual cost of acquiring the drug. For drugs acquired under 340B, this acquisition cost cannot exceed the 340B ceiling price.7 Federal rules also require that states pay a fee for the pharmacist’s professional services and costs to dispense the drug to Medicaid beneficiaries. States are allowed flexibility in establishing their professional dispensing fees, with some states choosing to segment pharmacies by prescription volume, number of locations or other factors, including 340B status. Forty-two states (of 49 states) indicated they did not have a dispensing fee for 340B programs that was different from the FFS professional dispensing fee, while seven did (Arizona, Illinois, Maryland, North Carolina, Oregon, South Carolina, and Tennessee). Three states (Arizona, Iowa, and Mississippi) mandate that MCOs reimburse 340B claims at the FFS rate.

Payment, Supplemental Rebates and Rebate Management Challenges and Priorities in FY 2020 and Beyond