CLIENT ALERT: CMS Issues Info Bulletin for State Medicaid Agencies to Avoid 340B Duplicate Discounts

By | Published On: January 9, 2020

On January 8, 2020, CMS’ Center for Medicaid and CHIP Services (CMCS) issued an Informational Bulletin (“Bulletin”) sharing best practices with state Medicaid agencies for the prevention of 340B program Medicaid duplicate discounts.  The Bulletin addresses both fee-for-service (FFS) Medicaid and Medicaid managed care organizations (MCOs), and describes covered entity dispensing, covered entity drug administration, and contract pharmacy dispensing.  The Bulletin affirms many of the strategies that 340B program covered entities, including hospitals, federally qualified health centers, and Ryan White HIV/AIDS clinics, have deployed nationwide.


340B program covered entities and state Medicaid agencies each have responsibilities with respect to the prevention of Medicaid duplicate discounts – the result of a state Medicaid agency seeking a Medicaid rebate on a drug that was initially purchased at discounted 340B program pricing.  In FFS Medicaid, covered entities and their contract pharmacies may not bill FFS Medicaid using 340B drugs unless the state will not seek a rebate for the drug.[1]  The Health Resources and Services Administration (HRSA), CMS’ sister agency within HHS, established a Medicaid Exclusion File (MEF) that reflects each covered entity’s decision to either use 340B drugs when billing FFS Medicaid (“carve in”) or refrain from using 340B drugs when billing FFS Medicaid (“carving out”).[2]

Congress expanded the Medicaid Drug Rebate Program in the Affordable Care Act in 2010 to include rebates for drugs paid for by MCOs.[3]  In doing so, Congress excluded drugs purchased at 340B pricing from those that are eligible for a Medicaid MCO rebate, and required states to direct their MCOs to exclude 340B drugs from their drug utilization data, so that the state would not seek a rebate on the ineligible drugs.[4]

The Bulletin

The Bulletin addresses specific topics in turn, and suggests best practices for each:

Use of the MEF.  The Bulletin reminds states that the MEF is a useful tool for preventing duplicate discounts in FFS Medicaid, but “does not apply to 340B covered entities’ arrangements with Medicaid managed care plans at this time.”[5]  Some states imply that they use the MEF to identify both FFS and MCO behaviors.  The Bulletin reminds them that the MEF is not an accurate tool for that purpose.

Contract Pharmacy Strategies.  The Bulletin reaffirms the long-standing rule that contract pharmacies may not bill FFS Medicaid unless they have obtained permission from the covered entity, HRSA, and the state Medicaid agency.

Use of Medicaid State Plan Amendments (SPAs).  The Bulletin is somewhat ambiguous when describing the role that SPAs can play in managing 340B duplicate discounts.  It states that some states have used SPAs to address the use of 340B drugs in FFS Medicaid by covered entities and contract pharmacies, but does not clearly state that SPAs are not valid tools for imposing MCO billing or use restrictions.  We understand that some stakeholders are already seeking clarification of that point.

Use of 340B Claims Identifiers.  The most common tools used to identify 340B claims at the point of sale for exclusion from rebate requests are billing modifiers (including Submission Clarification Code “20” and Basis of Cost Determination code “08” in the National Council for Prescription Drug Programs (NCPDP) D.0 standard, and the “UD” modifier in the medical claims UB-04 standard).  The code cannot be used by pharmacies or covered entities unless they know that the claim will be a 340B-eligible claim in real-time.  As the Bulletin notes, the NCPDP Submission Clarification Code “has had very limited use…and NCPDP has indicated that in the future it plans to sunset the value” in forthcoming standards.

MCO Contracting.  The Bulletin addresses the use of 340B-specific provisions in MCO contracts.  State Medicaid agencies are required to include such a term in their agreements with MCOs.[6]  Unfortunately, the Bulletin does not provide specific strategies for state Medicaid agencies or covered entities, outside of suggesting that covered entities consider “working with the applicable state to develop strategies.”[7]

Sharing Claims-Level Data with ManufacturersThe Bulletin suggests that state Medicaid agencies could share claims-level data with drug manufacturers to assist the manufacturers in identifying duplicate discounts.  Doing so could reduce the number of misunderstandings and rebate disputes (or reduce a state’s rebate haul depending on the accuracy of its claims).

Requiring Specific BIN/PCN Combinations for MCOs.  Covered entities have long complained that they cannot distinguish between an MCO plan and a commercial plan operated by the same pharmacy benefit manager (PBM).  The Bulletin strongly suggests that states require MCOs to have a Medicaid-specific Bank Identification Number (BIN) and Processor Control Number (PCN) for each MCO plan.  With a unique BIN/PCN combination, covered entities and pharmacies can more easily identify MCO enrollees.


Though the Bulletin does not create any new standards or interpretations, it is a valuable and accurate restatement of the requirements applicable to covered entities, state Medicaid agencies, pharmacies, and MCOs to assist in the avoidance of duplicate discounts.  The Bulletin might convince some states that employ practices other than those identified in the Bulletin to reconsider.

If you have any questions about this update or other matters, please contact Michael Glomb, or call (202) 466-8960.

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[1] Section 340B(a)(5)(A) of the Public Health Service Act, codified at 42 U.S.C. § 256b(a)(5)(A).

[2] See HRSA, Office of Pharmacy Affairs, Policy Release 2014-1 (Dec. 12, 2014), here.

[3] Patient Protection and Affordable Care Act, Pub. L. 111-148, § 2501(c), 124 Stat. 119, 308 (Mar. 23, 2010).

[4] 42 U.S.C. §§ 1396b(m)(2)(A)(xiii), 1396r-8(j)(1).

[5] Bulletin at 2-3.

[6] 42 C.F.R. § 438.3(s)(3).

[7] Bulletin at 5.

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