CLIENT ALERT: House Health Subcommittee Recommends Bills That Would Eliminate 340B Margin on Medicaid Managed Care Drugs, Require Reporting on 340B Utilization and Savings

By | Published On: May 18, 2023

The Health Subcommittee of the House of Representatives’ Energy and Commerce Committee held a markup hearing on May 17, 2023 to discuss a series of bills relating to transparency and competition in health care. Two bills that were recommended out of the session have significant impact on federal 340B drug discount providers. H.R. 3281, which would require Medicaid managed care organizations (MCOs) and their pharmacy benefit managers (PBMs) to adopt fee-for-service (FFS) Medicaid payment methodologies for outpatient drugs, was recommended unanimously by the Subcommittee. H.R. 3290, which would require hospital covered entities and any other covered entity designated by HHS to report on 340B savings and would require all covered entities to permit HHS to audit how 340B savings are used, was recommended on a 16-12 party line vote. Republicans control the House.

H.R. 3281

H.R. 3281 purports to remove “spread” from Medicaid managed care drug reimbursement by requiring MCOs and their PBMs to reimburse pharmacies for dispensed drugs in the same way FFS Medicaid does. Under regulations passed in 2016, FFS Medicaid pays dispensing pharmacies the actual ingredient cost plus a “professional dispensing fee” determined by surveying the actual costs to dispense drugs in each state.1 The FFS Medicaid regulations also require state Medicaid agencies to ensure that the actual ingredient cost used to reimburse for 340B drugs reflects the actual 340B price of the drug.2 That approach has the effect of redistributing the 340B discount from the covered entity to the state Medicaid agency, and deprives the covered entity of receiving any benefit from the transaction other than the professional dispensing fee, which averages about $10 per fill.

In some states, covered entities are permitted to use 340B drugs when billing MCOs, whether through in-house pharmacies or contract pharmacies, and to receive market-based reimbursement for those drugs. Congress clearly intended for covered entities to retain the benefit of reimbursement margin in Medicaid managed care because it protected covered entities when it expanded the Medicaid Drug Rebate Program to include MCO-paid drugs in the Affordable Care Act in 2010. Language very similar to the MCO reimbursement language currently in H.R. 3281 was included in H.R. 1613, a bill proposed by Rep. Buddy Carter (a pharmacist). H.R. 1613 would have allowed 340B covered entities and contract pharmacies to be paid the average non-340B acquisition cost of the drug, which would have allowed covered entities to retain the 340B discount. In a surprise on the eve of the hearing, H.R. 1613 was rolled into H.R. 3281 with the 340B reimbursement protection removed. Without the protection, covered entities would be paid the 340B acquisition cost of the drug billed instead of the non-340B acquisition cost of the drug. The change would eliminate any benefit derived from using 340B drugs and would result in covered entities losing a major revenue source in states that permit 340B billing of MCOs.

H.R. 3281 brings to the national stage a fight that has played out in California and New York, which shifted the Medicaid pharmacy benefit away from MCOs and began covering all drugs through FFS Medicaid on January 1, 2022 and April 1, 2023 respectively. Covered entities in both states estimated that their revenue losses would be measured in the hundreds of millions of dollars. Lawsuits challenging both moves are pending.

The bill was recommended unanimously by the Subcommittee and next will be considered by the full House Energy and Commerce Committee, likely before Memorial Day, which could recommend consideration of the bill by the full House. If a version of H.R. 3281 is passed by the House and Senate and enacted, it would impose FFS Medicaid reimbursement rules nationwide, and effectively remove Medicaid as a viable payer for 340B drugs. The “winners” in that scenario would be drug manufacturers, which would face far less Medicaid rebate duplicate discount risk with 340B drugs practically removed from Medicaid billing, and state Medicaid agencies and the Centers for Medicaid and Medicare Services, which would face fewer difficulties collecting rebates on Medicaid drugs. The “losers,” aside from non-profit safety net providers and independent pharmacies that earn fees serving as contract pharmacies for those providers, and patients, would be PBMs.

H.R. 3290

H.R. 3290 would authorize HHS to audit covered entities to determine how they use their 340B savings, and would require hospitals and other covered entities identified by HHS to report on 340B drug statistics, including number of patients, costs incurred, charity care at off-campus sites, and other factors. The reported data would then be published on the Office of Pharmacy Affairs Information System website.

Transparency and reporting in the 340B program has long been an area of interest for Congress, and a pressure point used by drug manufacturers. Presumably any data obtained would be used to determine whether covered entities are “deserving” of the benefit Congress has granted them in the form of 340B program participation. Data tracking, reporting, and audit readiness are burdensome for covered entities, many of whom lack the resources to employ staff that can focus on such things, or are already stretched thin by existing, and always increasing, 340B program compliance responsibilities.

H.R. 3290 was recommended out of the Subcommittee on partisan lines, with the majority Republicans moving it to the full committee on a 16-12 vote. It will next be considered by the full House Energy and Commerce Committee, most likely before Memorial Day, which could recommend consideration by the full House.

Other Issues

The Subcommittee did not consider any legislation relating to the current fight between covered entities and drug manufactures over contract pharmacy shipment restrictions. Vice Chair Buschon suggested that those matters would not be considered until litigation has played out. We are currently awaiting decisions from the Seventh Circuit and D.C. Circuit Courts of Appeals.

The 340B community can expect to see more legislative activity in 2023, both in the form of hearings and introduced legislation. If you have any questions regarding any aspects of the 340B program, please contact Michael Glomb at or 202.466.8960 or the FTLF attorney with whom you have a relationship.

1 42 C.F.R. §§ 447.512, 447.514, 447.518.

2 Id. § 447.518(a)(1)(i) and (ii).