The theme of our June edition of the 340Buzz was “waiting games” – a trend that continues as we move into the summer months. This month, we recap a new OIG report on Medicare Part D rebates, reflect on how the outcome of the ACA lawsuit could impact covered entities, discuss 340B program policy changes in South Carolina and await a possible 340B-related amendment to the newly passed “Lower Health Care Costs” Act.
OIG talks Medicare Part D
On July 1, OIG released a report in which they found that in 2014, pharmacy benefit managers (PBMs) missed out on potential rebates of up to $74.7 million on Medicare Part D prescriptions because those drugs were filled through the 340B program.
PBMs, or “sponsors,” typically receive rebates from drug manufacturers in exchange for offering those drugs on their formularies and playing middleman between manufacturers and insurance companies. However, when Medicare Part D drugs are filled through the 340B program, manufacturers are required to sell those 340B drugs to covered entities at a deep discount and – in an effort to avoid paying out double rebates – the manufacturers therefore do not offer rebates on those 340B drugs to the PBMs.
The OIG report found that “tens of millions of dollars in rebates could have been generated had manufacturers and sponsors agreed that eligible prescriptions filled at 340B contract pharmacies would receive rebates.” In other words, if the prescriptions had been filled at non-340B pharmacies, the rebates provided to the PBMs would have been upwards of $74 million in 2014 alone. “The manufacturers did not pay these rebates because, as sponsors reported, rebate agreements did not require manufacturers to pay rebates for Part D drugs filled at a 340B contract pharmacy,” the report said.
“There is an opportunity to potentially reduce Part D costs if sponsors were to negotiate similar net prices for both non-340B drugs dispensed by 340B contract pharmacies and drugs dispensed by non-340B pharmacies,” the report concluded.
While the report contains no recommendations or suggested action based on these findings, we can extrapolate potential future arguments and recommendations that the administration or Congress might make.
The report’s “factual conclusions suggest that the Medicare program could see significant savings if manufacturers did not include the 340B pharmacy carve-out provisions in their Part D contracts with sponsors or if coding was used for Part D beneficiaries’ prescription drugs to identify 340B-eligible claims,” according to an article from JD SUPRA. The article also suggests that one possible result of the OIG report might be that, “in order to maximize Part D rebates, all Part D prescription drug fulfillment could be shifted away from 340B-associated pharmacies, which would rob 340B covered entities of a portion of the financial benefit of their contract pharmacies.” Sentry agrees with the conclusion the JD SUPRA article reaches, which is that “ 340B covered entities, Part D program sponsors and drug manufacturers should monitor the effects the OIG’s report has on their operations.”
In related news, on July 11, the White House announced that it would be dropping its plan to overhaul how PBMs and manufacturers negotiate these types of rebates. “The now-dead proposal would have overhauled the rebates collected by pharmacy benefit managers,” according to an article from Axios, which first broke the news. PBMs “negotiate discounted prices in the form of a rebate but keep some of those rebates for themselves as profit. Trump’s proposal would have banned that arrangement in Medicare and Medicaid, requiring PBMs to pass the rebates on to patients at the pharmacy counter and find a different way to bring in their own revenues.”
The July 11 announcement of the administration’s plan to scrap the proposal came from White House Spokesman Judd Deere, who said, “The Trump administration is encouraged by continuing bipartisan conversations about legislation to reduce outrageous drug costs.”
Will ACA battle impact covered entities?
The constitutionality of the Affordable Care Act is currently up for debate yet again. The Supreme Court has upheld the law as constitutional twice, but “a federal district judge in Texas ruled it invalid late last year,” as the Washington Post reports. That declaration led to a lawsuit in which Texas, along with 17 other states, is suing HHS, claiming the entire ACA is unconstitutional.
On July 9, Democrats and Republicans delivered oral arguments in the case to the U.S. Court of Appeals for the Fifth Circuit. A verdict is not expected until at least the fall.
A July 10 update from FierceHealthcare notes that the debate currently centers around whether the ACA’s individual mandate – the requirement that most citizens either obtain health insurance or pay a financial penalty – is severable from the rest of the law. The financial penalty was dropped down to zero as part of the 2017 tax reform law, so Texas and the other plaintiff states are asserting that “Congress has lost its taxing authority and the mandate is unconstitutional” and that “the rest of the law must be struck down because the mandate is such an integral part of it,” according to FierceHealthcare.
The article continues on to say that the appellate court appears likely to send the lawsuit “back to a lower court to settle key issues, such as which parts of the law can exist without the individual mandate.”
Where the chips fall in this debate may have an unintended effect on the 340B program and on covered entities. When the ACA was signed into law in 2010, it added rural referral centers, critical access hospitals and sole community hospitals as entities that were eligible to participate in the 340B program. If the entire ACA is declared unconstitutional, those entities could lose their 340B status.
Sentry will continue to provide relevant updates as the ongoing legal battle develops.
South Carolina announces policy changes for 340B drugs
On June 28, the South Carolina Department of Health and Human Services (SCDHHS) released a public notice announcing policy changes that covered entities must adhere to relating to drugs purchased through the 340B program. Those changes include:
- For drugs purchased through the 340B program, covered entities must submit a value of “20” in the Submission Clarification Code field
- Reimbursement for drugs purchased through the 340B program will be provided as an amount not to exceed the 340B ceiling price plus a 340B dispensing fee of $10.50 being submitted in the usual and customary field when submitting these claims to SCDHHS or the provider’s usual and customary charges for providing the medication to the general public, whichever is less
- Contract pharmacies should not bill SCDHHS for drugs purchased through the 340B program
According to the website, the policy changes are effective “on or after July 1.”
Such policies have become fairly standard among individual states, as state Medicaid programs look to maximize possible rebates from pharma companies while simultaneously avoiding duplicate rebates that would be considered a violation of 340B compliance.
Monitoring new laws for mention of 340B
In last month’s 340Buzz, we reported that on June 19, led by Senator Lamar Alexander (R-Tenn.) and Senator Patty Murray, (D-Wash.), the Senate Committee on Health, Education, Labor and Pensions (HELP) introduced the Lower Health Care Costs Act (S.1895), legislation to prevent surprise medical bills, reduce prescription drug prices, and improve transparency in healthcare.
The bipartisan bill passed by a vote of 20-3 on June 26, and at the time of voting, no mention of 340B was included in the bill.
Sentry will continue to monitor upcoming new bills throughout the summer and into the fall, both for direct mention of 340B and for any amendments that might impact the program. We urge our covered entity customers to continue reaching out to state and federal lawmakers to share stories of the positive impact of the 340B program.
Still to come in August
In the ongoing lawsuit filed against HHS by the AHA and several other hospital associations regarding the 340B Medicare Part B cuts, Judge Rudolph Contreras of the U.S. District Court for the District of Columbia ruled again that HHS’ 340B reimbursement cuts were unlawful in early May, calling for HHS to come up with a plan to resolve the issue by August 5.
In the meantime, CMS continues to appeal the judge’s decision and it is anticipated that the 2020 Outpatient Prospective Payment System (OPPS) rule will still include Medicare Part B reductions, despite the fact that such cuts have been ruled unlawful. Continued monitoring of the rule and judgement are required, and for now, hospitals must follow the current regulation and apply modifiers to certain 340B eligible claims as indicated by CMS.
Also predicted in August is more information regarding the proposed International Pricing Index (IPI) model for Medicare Part B drug reimbursement. The new payment model would encourage private-sector vendors (such as specialty pharmacies, co-op groups of hospitals or health systems, or GPOs) to negotiate with pharmaceutical manufacturers for the purchase of Medicare Part B drugs, including specialty drugs, infusion drugs and biologics. Hospitals would then purchase drugs from whichever private vendor they choose as opposed to buying directly from manufacturers.
CMS originally said that the next step following the advance notice would be a proposed ruling, to be released in June 2019; that date has since been pushed to August.
Many industry stakeholders who submitted comments on the advance notice had concerns about how the model would affect the 340B program. Of those public comments that addressed the 340B program directly, the majority appeared to be opposed to the IPI model, with concerns raised regarding potential group purchasing organization 340B violations, inefficiency in access and operations, and ultimately the impact on the 340B price.
As always, the healthcare industry and the 340B program are in flux, and Sentry will continue to update its customers on these and other issues as developments arise.