solutions for pharmaceutical manufacturers who participate in the Medicaid Drug Rebate Program and pay too much because of 340b duplicate discounts

Drug Pricing: Tech Start-Up Provides Solutions for Drug Manufacturers Subject to 340B Duplicate Discounts

The extent to which 340B covered entities receive duplicate discounts from pharmaceutical manufacturers who take part in the Medicaid Drug Rebate Program (MDRP) is widely documented.

The Medicaid Exclusion File

The Health Resources and Services Administration (HRSA) established the 340B Medicaid Exclusion File (MEF) as The mechanism to aid 340B covered entities and states to prevent duplicate discounts for drugs subject to Medicaid rebates.

But in terms of efficacy, the MEF is insufficient in mitigating duplicate discounts. An estimated $2 billion in improper rebate payments are paid by pharmaceutical manufacturers — and received by 340B covered entities — on an annual basis. Continue reading “Drug Pricing: Tech Start-Up Provides Solutions for Drug Manufacturers Subject to 340B Duplicate Discounts”

Update: Federal Court Allows The Centers for Medicare & Medicaid Services to Cut $1.6 billion from Federal 340B Drug Pricing Program

Health care policies are implemented through expenditure decisions made by government officials. Today, a federal court  deemed a lawsuit brought by three hospital associations — among other entities — invalid, allowing the CMS to implement the provisions of a final rule the agency published in November. 


In November, the CMS published a controversial final rule  which, among other things, cut Medicare hospital reimbursement payments for hospitals that participate in the Health Resources and Services Administration’s (HRSA’s) 340B Drug Pricing Program by $1.6 billon, effective January 1, 2018. Rural, children’s and cancer hospitals are not subject to reimbursement decreases.


The language in the final rule reads: “We [CMS] believe that reducing payments on 340B purchased drugs to better align with hospital acquisition costs directly lowers drug costs for those beneficiaries who receive a covered outpatient drug from a 340B participating hospital. Further, to the extent that studies have found that 340B participating hospitals tend to use more high cost drugs, we believe that this 340B payment policy helps address drug pricing in the hospital outpatient setting by lessening the incentive for unnecessary utilization of costly drugs.”


The Omnibus Reconciliation Act created the CMS’ Medicaid Rebate Program in 1990. In order to be reimbursed by the federal government, and as a prerequisite for entry into the Medicaid and Medicare Part B markets, the Act requires drug manufacturers to offer formula based rebates on certain outpatient drugs.

To mitigate the unintended consequences of the rebate program — a rise in prescription drug costs for safety net hospitals and other entities that provide health care services to low income patients — Congress passed the Veterans Health Care Act of 1992 which created Section 340B of the Public Health Service Act. The Act requires pharmaceutical manufacturers to provide point of sale discounts to 340B-covered entities.


The HRSA’s Office of Pharmacy Affairs administers the 340B Drug Pricing Program.

Qualifying hospitals and other 340B-covered entities receive discounts from pharmaceutical manufacturers participating in government-sponsored health care programs that have entered into a pharmaceutical pricing agreement with the Department of Health and Human Services Secretary.

Manufacturers participating in Medicaid agree to provide outpatient drugs to covered entities at significantly reduced prices. All covered entities must register and annually re-certify their eligibility as 340B providers, agree to adhere to all program requirements, and accurately report how they bill Medicaid fee-for-service drugs on the Medicaid Exclusion File (MEF).

The MEF is a coding mechanism employed by 340B-covered entities and states to prevent duplicate discounts for drugs subject to Medicaid rebates. By law, drug manufacturers are not allowed to provide a discounted 340B price and a Medicaid drug rebate for the same product.


By authorizing the CMS to continue with its plan to cut the 340B Drug Pricing Program by $1.6 billion, Medicare hospital reimbursement payments for 340B hospitals will decrease exponentially. According to the hospital associations involved in the lawsuit, this decision will profoundly undermine patient access to affordable prescription drugs. Proponents of 340B program cuts disagree… Only time will tell.

O.W.B Public Affairs Digest
O.W.B Public Affairs Digest


Managed Care and Rural Health: Medicaid and CHIP Managed Care Final Rule

In FY 2016, total Medicaid Expenditures — including the US Territories, administrative costs, and accounting adjustments — exceeded $574 billion. Meanwhile,  rural health outcomes are poor, and the health care utilization rate among rural residents is low compared with the nation’s urban residents.

Rural Health Care

Provider shortages, poor transportation infrastructure, socio-cultural dynamics, and inadequate broadband internet access are factors that diminish rural health care access. As a strategy to contain rising health care costs and improve rural health outcomes, states across the country are transitioning rural Medicaid beneficiaries from fee-for-service health care arrangements to Medicaid managed care.

Medicaid Managed Care

Managed care organizations (MCOs) have demonstrated an ability to provide Medicaid coverage that results in efficiency in the provision of government-sponsored health care and effectiveness in improving the health outcomes of rural residents through features such as telemedicine (if possible), allied health professionals, community health workers, and non-emergency medical transportation (NEMT).

NEMT is a mandatory Medicaid benefit but states can, and do, limit the availability of NEMT services via federal waivers. However, full-risk capitation arrangements incentivize MCOs to provide services such as NEMT.

Medicaid and CHIP Managed Care Final Rule 

The extent of recent reports detailing the ways in which rural hospitals are struggling to stay open further illustrates the benefit of managed care.  Specifically, MCOs must adhere to network adequacy requirements as established by the CMS’ 2016 Medicaid and CHIP Managed Care Final Rule. The network adequacy provisions require states to establish and enforce certain time and distance standards with contracted MCOs.

Facts on Rural Health 

  • The incidence of diabetes among rural residents is 17% higher than urban residents.[1]
  • Mental health comorbidities are more common in rural, long-term care populations.[2]
  • Limitations in activities of daily living are more prevalent among rural residents.[3]
  • The prevalence of hypertension is higher in rural populations than in urban populations.[4]
  • Rural Medicaid beneficiaries are more likely than their urban counterparts to be dually eligible for Medicaid and Medicare, and are overwhelmingly low income, elderly and disabled; dual eligibles are considered the most costly, at-risk, and vulnerable population.[5]

[1] Lorenz, G., Levey, M., and Case, R. (2013). Integrated Care Through Education: Improving Care for Those with Serious Mental Illness and/or Intellectual Disability and Diabetes in Rural Indiana. Journal of Rural Mental Health.

[2] Quinn, M. (2016). New Medicaid Rules Could Ease Rural Health Care’s Problems. Governing. Retrieved from

[3]Rural Health Information Hub. (2016). Medicare and Rural Health. Retrieved from

[4] Ibid.

[5] CMS. (2015). People Enrolled In Medicare and Medicaid: Medicare-Medicaid Coordination Office Fact Sheet. Retrieved from -coordination-Office/Downloads/MMCO Factsheet.pdf.

What Gets Measured Gets Managed: Medicaid Encounter Data Quality Submission Standards|White Paper

updated 02 October 2018

What Gets Measured Gets Managed: Medicaid Encounter Data Quality Submission Standards| White Paper

What Gets Measured Gets Managed: Medicaid Encounter Data Quality|White Paper
What Gets Measured Gets Managed: Medicaid Encounter Data Quality|White Paper

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