Concept: The need for the creation of a plan of correction by State Medicaid on 340B drug identification for Medicaid managed care prescription claims.

Presented by: the Honorable Billy Tauzin, former U.S. Congressman, Chairman of the Energy and Commerce Committee and past President of the Pharmaceutical Research and Manufacturers Association (PhRMA); and J. Edward Gilmartin, COO and Co-founder of CaptureRx®, one of the nation’s largest 340B Drug Program Administrators for safety-net clinics and hospitals.


States Benefit from New Large Savings Stream
Prior to the Federal Patient Protect and Affordable Care Act (PPACA), drugs furnished by Medicaid managed care plans were exempt from rebates that the States receive for Medicaid fee-for-service under the Omnibus Reconciliation Act of 1990 (OBRA90). PPACA extended Medicaid fee-for-service drug rebates to Medicaid managed care which now allows States to enjoy a new large savings stream. At the same time, however, 340B drugs were specifically exempted from this requirement and the new savings stream for states.1

Benefits of 340B to Safety-net Clinics and Hospitals
Congress created the 340B program in 1992 to enable safety-net clinics and hospitals to stretch their scarce resources so that they may “reach more patients” and furnish “more comprehensive services.”2 The 340B program allows these providers the ability to purchase drugs for their outpatients at half the cost of the commercial market. As discussed in a recent report by the Government Accountability Office (GAO), 340B providers are using the additional savings they receive to further the program’s purpose, such as by maintaining services, purchasing equipment, and lowering medication costs to the most vulnerable patients in our communities.3

340B Drugs Are Exempt
The purpose of the PPACA to exempt 340B drugs from the OBRA90 rebates was to protect 340B covered entities and the vulnerable patients they serve; Congress preserved the existing status quo. Prior to PPACA, States were not receiving savings from 340B managed care drugs; and the exemption ensured that they would not receive any such savings as a result of PPACA. This exemption also served to avoid duplicate discounts paid by drug manufactures. To avoid duplicate discounting, in which drug manufacturers would not pay rebates on already discounted 340B drugs, there must be a mechanism by which the States remove 340B claims from the Medicaid managed care claims before submitting for rebates under OBRA90.

The Issue

PPACA placed the responsibility on the States to report OBRA90 rebates for Medicaid managed care claims to drug manufacturers.4 More importantly, PPACA excludes 340B drugs from the OBRA90 submission on Medicaid managed care claims. As a result, the responsibility lies with the States to assure that 340B drugs used for Medicaid managed care claims are identified and removed from the OBRA90 rebate requests. Although clinics and hospitals can identify Medicaid managed care claims that were filled using 340B drugs, to date, there is no practical mechanism offered by States to allow for the identification, collection, and subsequent removal of 340B claims from Medicaid managed care claims submitted for the OBRA90 Rebates.

340B Identification Methods
There are two potential methods that can be used for identifying 340B claims by the pharmacy, which consists of: 1) a prospective point-of-sale (POS) method and 2) a retrospective method. The use of the prospective method must include the ability for the pharmacy to identify 340B claims at the time the prescription is being filled. However, this method can only be used when: 1) physical 340B drug inventory is on-hand at the pharmacy, and 2) when the pharmacy knows that the patient is eligible for 340B. These same requirements are obstacles for most pharmacies filling 340B prescriptions. While some pharmacies maintain physical 340B inventories in advance and know the 340B eligibility status of patients at POS, most 340B pharmacies, especially contracted pharmacies, do not. Therefore, 340B identification at POS is a non-starter. This issue is also addressed and substantiated by the pharmacy industry standards organization, the National Council of Prescription Drug Programs (NCPDP) 340B Task Force and W9 Workgroup.5

Today, most 340B dispensing pharmacies operate successfully using a retrospective identification process and a virtual inventory that replenishes the pharmacy’s on-hand retail inventory that was used to fill a 340B patient’s prescription. 340B claims are accumulated “virtually” until there are enough claims and pills of the dispensed drug to complete a full bottle size. This accumulation process can replenish the next day, or it can take up to 90 days, before a monetary credit on any balances remaining that could not complete a bottle size are remanded back to the pharmacy and the remainder of the claims are identified as retail rather than 340B.

The retrospective method of identifying 340B claims for Medicaid managed care is the only proven and workable solution. As mentioned, most 340B dispensing pharmacies do not know whether the patient is eligible when the prescription is filled. It is only when claims from pharmacies are analyzed after the prescription is dispensed to the patients. Much of this post-analysis consists of matching claims with patient eligibility files, eligible prescribers and incorporating other business edits and filters to assure compliance with the law. Many 340B eligible clinics and hospitals use administrators, like CaptureRx®, to contract 340B pharmacies, compliantly identify eligible 340B claims, manage inventories, place 340B orders for replenishment, and provide funds settlement services.


The State’s solution is to either require Medicaid managed care companies to accept 340B eligible claims identification retrospectively from 340B Covered Entities, or for the State to accept a similar file of claims directly so that the State can remove such claims from rebate invoices to drug manufacturers. Although the NCPDP 340B W9 Workgroup has proposed the use of what is called “N” reporting, by which pharmacies can retrospectively resubmit previous claims on-line and include a code that would identify 340B drug use for that claim, this is still a year out. Additionally, the Medicaid managed care companies would have to program for its acceptance, and pharmacies and their systems would need to accommodate for batching and resubmitting thousands of N transactions. Therefore the most efficient, expedient and practical solution is for the State to accept a 340B claim file directly from Covered Entities or their pharmacy or 340B administrator partners. The State could create a file repository or “Clearinghouse” to exchange files with the Covered Entities and the State.

Path Forward

The State must take swift action to allow for the retrospective identification of 340B claims from Medicaid managed care claims submitted for Federal OBRA90 rebates. This action will 1) assure compliance with federal law under PPACA; 2) mitigates duplicate discounts by drug manufacturers; and 3) will maintain the greatly needed savings stream for safety-net providers in the State. Furthermore, there must be a process by which any Medicaid managed care claims previously submitted for rebate by the State, in which 340B drugs were consequently dispensed, must be re-invoiced through credits back to drug manufacturers.

CaptureRx®, the 340B Covered Entities and pharmacy providers it represents, requests by Executive Order by the Office of the Governor, that the Medicaid State Agency be tasked with a plan of correction mandating retrospective 340B claim processing for compliance, accuracy, and widespread adoption. As a technology and national-presence industry frontrunner, CaptureRx® leadership is available to assist with methodologies, technologies, piloting a project, and to formalize a plan that could be executed for the State.


1 42 USC §1396r-8[j][1][Covered outpatient drugs are not subject to the requirements of this section if such drugs are [A] dispensed by … Medicaid managed care organizations…; and [B] subject to discounts under section 340B…].
2 H.R. Rep. 102-384, pt.2, at 12 [1992].
3 Drug Pricing Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement, GAO-1-836 [Sept. 2011].
4 42 USC §1396r-8[b][2][Each State … shall report to each manufacturer…information on … each covered outpatient drug… for which payment was made…, including such information reported by each managed care organization…]
5 Nat’l Council of Prescription Drug Programs, 340B Information Exchange Reference Guide [July 2011].

For more information:

J. Edward C. Gilmartin, Senior Vice President | COO
10100 Reunion Place, Suite 700, San Antonio, Texas 78216
o 210-587-1311 / c 210-325-8988 / f 210-576-0420


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