On January 27, the Government Accountability Office (GAO) published a report concluding that the US Department of Health and Human Services (HHS) has provided limited oversight of the 340B and Medicaid Drug Rebate Programs, resulting in an increased risk that drug manufacturers may have paid discounts under both programs (known as “duplicate discounts”). The GAO recommended HHS take various measures to reduce the risk of future duplicate discounts. These recommendations may lead to states imposing more robust duplicate discount prevention requirements for 340B-covered entities and contract pharmacies.

In Depth

On January 27, 2020, the GAO released a report (the “Report”) recommending that the Centers for Medicare and Medicaid Services (CMS) require state Medicaid agencies to implement policies and procedures to prevent manufacturers from paying Medicaid rebates on drugs sold at 340B discounted prices (commonly referred to as “duplicate discounts”). The Report also recommended that the Health Resources Services Administration (HRSA) begin assessing 340B-covered entities’ compliance with those policies and procedures and requiring 340B-covered entities to work with drug manufacturers to identify and repay duplicate discounts, both for Medicaid fee-for-service and Medicaid managed care plan claims.

HHS generally agreed with the GAO’s recommendation with respect to CMS oversight over state Medicaid agency policies and procedures; however, it disagreed with the GAO’s recommendations that HRSA assess covered entity compliance with state Medicaid agency policies and procedures and that HRSA require covered entities to work with manufacturers to repay duplicate discounts in Medicaid managed care.

The Report follows on the heels of two other government publications also addressing concerns related to 340B Program oversight, which we previously discussed in our On the Subject: 2020 Starts Off with Two Government Publications Critical of 340B Program Oversight. The GAO Report continues the growing focus on the prevalence of prohibited 340B duplicate discounts and suggests that state Medicaid agencies are more likely to take steps in the coming months to ensure covered entities and their contract pharmacies implement policies and procedures necessary to prevent duplicate discounts.

1. The Duplicate Discount Prohibition and Growing Interest

Federal law prohibits subjecting manufacturers to duplicate discounts in which drugs provided to Medicaid beneficiaries are subject to both the 340B Program discounted price and a Medicaid rebate. When a manufacturer erroneously provides both a discount and a rebate on a drug, the manufacturer is entitled to repayment for the duplicate discount. On the other hand, if a state Medicaid agency forgoes a rebate on a covered outpatient drug purchased outside of the 340B program, the Medicaid program incurs higher costs for drugs than it would if the rebate had been applied.

States are required to have policies and procedures to identify which drugs have already been discounted through the 340B Program and exclude them from rebate requests. However, neither CMS nor HRSA have issued specific regulations requiring specific duplicate discount prevention processes by 340B-covered entities or state Medicaid programs. This lack of regulation and oversight has fueled growing concerns in Congress and among certain 340B Program stakeholders about the efficacy of states’ policies and procedures for avoiding duplicate discounts.

2. The GAO Report

The GAO Report concluded that limitations in HHS’s oversight of the 340B and Medicaid Drug Rebate Programs may increase the risk that duplicate discounts occur. The Report’s findings began with an explanation of the great variation among states with respect to the use and identification of 340B drugs. Specifically, the GAO found that many state Medicaid agencies have implemented differing policies with respect to the circumstances in which a drug purchased at 340B prices may be used depending on whether the drug was reimbursed by Medicaid fee-for-service (FFS) or Medicaid managed care, and depending on the method in which the drug was dispensed (e.g., contract pharmacy vs. hospital outpatient department).

The Report also noted that states use different procedures for covered entities to identify and exclude 340B drugs from Medicaid rebate requests (e.g., relying on the Medicaid Exclusion File (MEF), requiring claim identifiers or using state-developed procedures). These procedures also varied depending on whether the drugs were furnished to Medicaid FFS or managed care beneficiaries.

In addition to the significant variation among and within states with respect to the use and identification of 340B drugs, the GAO found that state Medicaid programs’ policies for use and identification of 340B drugs for all dispensing methods were not always documented or made available to covered entities. In some cases where policies were documented, the policies were inadequate to prevent duplicate discounts. For example, some states use the MEF to identify whether covered entities carve in or carve out Medicaid managed care, but the MEF only includes information on whether covered entities are using 340B drugs for Medicaid FFS beneficiaries, not Medicaid managed care beneficiaries.

The GAO recommended three actions for CMS and HRSA to improve oversight of state Medicaid agencies and 340B-covered entities and ensure compliance with the prohibition on duplicate discounts, specifically recommending:

1. CMS should ensure that state Medicaid programs have written policies and procedures that are designed to prevent duplicate discounts and forgone rebates.

2. HRSA should incorporate into its audits assessments of covered entities’ compliance with state policies and procedures regarding the use and identification of 340B drugs.

3. HRSA should require covered entities to work with manufacturers regarding repayment of identified duplicate discounts in managed care.

In its response, HHS generally noted that it has already implemented processes to prevent duplicate discounts. For example, it noted that HHS regulations require Medicaid Managed Care Organizations (MCOs) to include an identifier on a prescription claim filled with a 340B-purchased drug so that these claims are excluded from the state quarterly rebate billings. HHS also noted that HRSA’s MEF identifies covered entities that participate in the 340B Program for FFS drugs. However, in response to the GAO’s first recommendation, HHS indicated that it plans to continue to work with states to make sure that utilization data excludes any claims for 340B drugs and address any issues, “if necessary.”

HHS did not agree with the GAO’s second recommendation, opining that HRSA “does not have the authority to determine if state Medicaid policies and procedures are adequate or appropriate to prevent duplicate discounts,” nor does HRSA “have regulatory authority related to the prevention of duplicate discounts for covered entities.” HHS further explained that HRSA’s audit processes and other program integrity efforts are primarily administered by guidance, opining that “[g]uidance does not provide HRSA appropriate enforcement capability.” For that reason, HHS noted that HRSA was not pursuing new guidance under the 340B program. HHS also noted its position that HRSA “does not have statutory authority to require covered entities to comply with state laws and requirements aimed at preventing duplicate discounts,” although it “expects” covered entities to comply.

With respect to the GAO’s third recommendation, HHS noted that it has not issued guidance for covered entities related to Medicaid managed care claims, and therefore, “it is difficult to assess compliance in this area absent a policy on this issue.” HHS explained that it has provided examples of best practices related to ways covered entities work with MCOs and state partners to prevent duplicate discounts.

3. Takeaways

• The GAO report may spur state Medicaid agencies to address duplicate discount prevention, including potentially publishing formal policies specific to Medicaid MCOs and 340B drugs, such as: (1) limiting the circumstances in which covered entities and their contract pharmacies may bill Medicaid FFS or Medicaid MCOs for drugs purchased at 340B discounts and (2) requiring that covered entities and contract pharmacies identify claims for 340B drugs billed to Medicaid FFS or Medicaid MCOs.

• Covered entities should be familiar with and monitor changes in the policies and procedures used by all relevant state Medicaid agencies to prevent duplicate discounts, including taking steps to ensure that contract pharmacy arrangements structured to be consistent with any state Medicaid requirements related to identifying 340B drugs dispensed to Medicaid MCO beneficiaries.

• HRSA does not have regulatory authority over mechanisms to prevent duplicate discounts, and HRSA currently views its authority to issue guidance as not providing enforcement capability in this regard.

• HRSA is currently evaluating its covered entity audit process and other program integrity efforts as they relate to HRSA’s ability to enforce and require corrective action in the 340B program and could implement changes to audit procedures and corrective actions.