July 27, Dear Acting Administrator Slavitt:

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1 Acting Administrator Centers for Medicare & Medicaid Services Department of Health and Human Services Attention: CMS-2390-P P.O. Box 8106 Baltimore, MD Re: Proposed Rule for Medicaid and Children s Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, Medicaid and CHIP Comprehensive Quality Strategies, and Revisions Related to Third Party Liability, 80 Fed. Reg (June 1, 2015) Dear Acting Administrator Slavitt: The undersigned organizations respectfully submit these comments regarding the proposed rule referenced above. Our organizations represent thousands of safety-net providers that participate in the 340B federal drug discount program administered by the Health Resources and Services Administration (HRSA). Our comments specifically concern the proposed provision requiring Medicaid managed care organizations (MCOs) to identify 340B claims and exclude those claims from the reports that the MCOs provide to states for purposes of requesting Medicaid rebates from pharmaceutical manufacturers. 1 Summary of Comments As discussed further below, we appreciate that the regulation correctly implements the Medicaid rebate statute by maintaining that states, not 340B covered entities, are legally responsible for protecting manufacturers from having to pay both a 340B discount and a Medicaid rebate on a managed care claim. In addition, we appreciate the flexibility provided by the rule, as a one-size-fits-all solution would not be appropriate given differences between 340B pharmacies. However, we believe the rule should allow states to develop 340B claim identification methods not involving MCOs if a state deems that such an approach would be most appropriate. In addition, we are concerned that, without further guidance from the Centers for Medicare and Medicaid Services (CMS), some states, MCOs, or MCOs pharmacy benefit managers (PBMs) might establish methodologies for identifying 340B claims that could make it difficult or impossible for some entities and 340B contract pharmacies 2 to use 340B for 1 Medicaid and Children s Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, Medicaid and CHIP Comprehensive Quality Strategies, and Revisions Related to Third Party Liability, 80 Fed. Reg , (proposed June 1, 2015) (to be codified at 42 C.F.R pt (s)(3)). 2 A contract pharmacy is a pharmacy that, in accordance with HRSA guidelines, contracts with a covered entity to dispense 340B drugs to eligible patients on the covered entity s behalf. Under this arrangement, the covered entity purchases the 340B drug, and the manufacturer bills the entity for the drug purchased but ships the drug to

2 Page 2 of 13 Medicaid managed care patients. Such methodologies would be inconsistent with congressional intent and federal law, which permits covered entities to choose whether or not to use 340B drugs for Medicaid managed care patients. As CMS considers new regulations for Medicaid managed care for the first time in over a decade, we believe the agency should address other critical 340B-related issues to ensure that the program continues to benefit safety-net providers and their vulnerable patient populations. The rule should ensure that state capitation rates are sufficient to permit MCOs to pay contracted 340B providers at levels that enable them to provide access to care consistent with statutory standards and the intent of the 340B program. CMS also should prohibit MCOs and MCOs PBMs from using billing information for 340B Medicaid claims to lower reimbursement for 340B commercial claims. We have attached proposed language that, if added to the rule, would address our concerns. We also included the suggested provisions in the corresponding sections of our comments below. I. The Rule Is Consistent with the Medicaid Rebate Statute by Not Assigning to Covered Entities the Legal Responsibility of Protecting Manufacturers from Having to Pay Both a 340B Discount and Medicaid Rebate on an MCO claim The Medicaid rebate statute clearly makes states legally responsible for protecting manufacturers from having to pay both a 340B discount and a Medicaid rebate on a managed care claim. The proposed rule correctly applies the statute by not assigning that responsibility to 340B providers. The 340B statute imposes responsibility on covered entities that bill Medicaid for 340B drugs that are subject to payment of a Medicaid rebate. The relevant provision, titled prohibiting duplicate discounts or rebates, states that a provider shall not request Medicaid reimbursement for a 340B drug that is subject to the payment of a rebate to the state. 3 The Patient Protection and Affordable Care Act (PPACA) amended the Medicaid rebate statute by requiring manufacturers to provide rebates for drugs dispensed to individuals enrolled in MCOs 4 but specifically excluded 340B MCO drugs from the rebate requirements. 5 Thus, 340B MCO drugs are not subject to rebates. This means that the duplicate discount provision in the 340B statute would not apply to 340B MCO drugs because that provision only applies to 340B drugs that are subject to rebates. Since 340B MCO drugs are not subject to rebates, the the contract pharmacy. The contract pharmacy serves as the covered entity s dispensing agent and is paid a dispensing fee for the services associated with filling each prescription dispensed. Contract pharmacies may provide other services for covered entities and typically serve as the entity s billing agent. HRSA s contract pharmacy service guidance can be found out at 75 Fed. Reg. 10,272 (March 5, 2010) U.S.C 256b(a)(5)(A)(i). 4 Id. at 1396r-8(b)(1)(A). 5 Id. at 1396r-8(j)(1).

3 Page 3 of 13 provisions of the 340B statute that impose responsibility on covered entities for prevention of duplicate discounts do not apply when the underlying drug is an MCO drug. Before PPACA, covered entities did not have to worry about duplicate discounts on 340B MCO drugs because, as explained above, states could not seek rebates on MCO drugs. By explicitly exempting 340B drugs from the expansion of the Medicaid rebate program to MCO drugs, Congress intended to preserve the status quo for providers. As before PPACA, entities would not be responsible for preventing the collection of rebates on 340B Medicaid MCO drugs and would have the right to decide whether or not to use 340B drugs for Medicaid managed care patients. It also makes sense from an operations standpoint that Congress did not assign responsibility for protecting manufacturers from paying rebates on 340B Medicaid MCO drugs to providers because billing for such drugs is substantially more complex than billing 340B fee-for-service (FFS) Medicaid drugs. Billing 340B FFS drugs is a relatively simple process in which a covered entity submits claims directly to the state. By contrast, billing 340B MCO drugs involves submitting claims to various PBMs acting on behalf of health plans that contract with the state. With so many state contractors and subcontractors participating in the billing process, states and their agents are in a better position than covered entities to protect manufacturers from paying rebates on 340B MCO drugs. II. While the Rule Provides Much-Needed Flexibility, the Rule Also Should Allow States to Develop Methodologies Not Involving MCOs We support CMS s decision to provide flexibility to MCOs in developing procedures to exclude 340B drugs from utilization reports. We particularly appreciate that CMS has not proposed that all pharmacies must identify 340B Medicaid MCO claims at the point of sale (POS). Such a methodology would be impractical given that some covered entity outpatient pharmacies and most contract pharmacies use a virtual 340B inventory. 6 For such pharmacies, 340B patient eligibility determinations are usually made after a drug is dispensed to a patient. The pharmacies do not know at the POS whether a claim is for a 340B drug. Therefore, a single methodology requiring identification of all 340B claims at the POS would not work for these pharmacies. We believe CMS should provide further flexibility by permitting states to establish procedures that do not reply upon utilization data reported by MCOs to identify 340B claims. Under the proposed rule, an MCO would identify and remove all 340B claims from its utilization report to the state using information submitted by covered entities to the MCO. Under our suggested alternative approach, an MCO would not remove 340B claims from the utilization report, and covered entities would instead send information on 340B claims directly to the state or its 6 For a survey conducted by 340B Health in May 2015, 88.43% (84/95) of respondent hospitals said that all their contract pharmacies use a virtual 340B inventory.

4 Page 4 of 13 rebate contractor, not the MCO. A state might decide to take this approach if its MCOs do not possess the technological capability to identify and exclude 340B claims or do not have the necessary relationships with entities to develop successful 340B claim identification mechanisms. Oregon Medicaid has instituted a retrospective identification mechanism that permits entities to send directly to the state s rebate contractor a quarterly claims file for 340B Medicaid MCO drugs dispensed by the entities contract pharmacies. 7 We note that it is extremely important that any identification methods developed by a state should comply with the guidelines and limits that we propose below to preserve a covered entity s statutory right to choose whether or not to use 340B for Medicaid managed care patients. Proposed Provision: 438.3(s)(3)(i) A State may establish procedures that do not rely upon utilization data reported by the MCO, PIHP or PAHP to identify covered outpatient drugs that are subject to discounts under the 340B drug pricing program. III. CMS Should Take Steps to Protect a Covered Entity s Statutory Right to Choose Whether or Not to Use 340B for Medicaid Managed Care Patients As explained above, when Congress expanded the Medicaid rebate program to include managed care, it sought to preserve a covered entity s right to choose whether or not to use 340B drugs for Medicaid managed care patients. We ask that CMS protect this right by explicitly acknowledging it in the rule and by including guidelines and limits for how MCOs can implement the rule. Without guidance, there is a risk that states, MCOs, or MCOs PBMs could use methodologies for identifying 340B claims that would make it difficult or impossible for covered entities to exercise that right. A methodology that limits covered entities use of 340B drugs could substantially reduce the 340B savings that entities use to improve patient care. Under longstanding HRSA guidance, a covered entity cannot have its contract pharmacies dispense 340B drugs to FFS Medicaid patients unless the entity and state Medicaid agency have developed an arrangement for the identification of 340B claims. 8 Because no such rule exists for Medicaid managed care, many covered entities have historically had their contract pharmacies dispense 340B drugs to Medicaid managed care patients. Covered entities also historically have been able to choose whether or not to use 340B for each MCO and each MCO drug. 9 For example, an entity might 7 Policy Notification Oregon Medicaid 340B Drug Claims File (Feb. 13, 2015), %20Oregon%20Medicaid%20340B%20Drug%20Claim%20File.pdf. 8 The Health Resource and Services Administration (HRSA) included this requirement in its first guidance on 340B contract pharmacies in Final Notice Regarding Section 602 of the Veterans Health Care Act of 1992; Contracted Pharmacy Services, 61 Fed. Reg , (Aug. 23, 1996). HRSA maintained the requirement when the agency issued new contract pharmacy guidance in Final Notice Regarding 340B Drug Pricing Program Contract Pharmacy Services, 75 Fed. Reg , (Mar ). 9 We recognize that 340B program rules prohibit disproportionate share hospitals, freestanding children s hospitals, and freestanding cancer hospitals from buying covered outpatient drugs using a group purchasing

5 Page 5 of 13 decide not to use 340B for a particular MCO or drug if the MCO s 340B claim identification mechanism is too burdensome. Any methodology that disrupts these practices could have significant consequences for entities and their patients. Thus, preserving a covered entity s right to choose whether or not to use 340B is an important protection. In addition, HRSA has noted that a covered entity is in the best position to determine the appropriateness of its 340B drug purchasing practices, 10 which would include the decision of whether or not to use a 340B drug for a patient. To protect a covered entity s right to choose whether or not to use 340B drugs for Medicaid managed care patients, CMS should include a provision in the rule clearly spelling out that right. In addition, CMS should require states to include a provision acknowledging the right in their state Medicaid plans and contracts with MCOs. CMS also should include the right in its State Guide to CMS Criteria for Managed Care Contract Review and Approval, which already requires that MCOs be contractually obligated to exclude 340B claims from the reports they provide to states for purposes of collecting Medicaid rebates. 11 This step would help ensure that states are acknowledging the right in their MCO contracts and that CMS Regional Offices are examining the contracts to confirm that states are doing so. As explained below, we recommend that any CMS guidance on this issue, in addition to acknowledging a covered entity s right to choose whether or not to use 340B drugs for Medicaid managed care patients, (1) require MCOs and states to develop retrospective 340B claim identification methods for instances when a 340B claim cannot be identified at the POS, (2) prohibit MCOs and states from using HRSA s Medicaid exclusion file to identify 340B Medicaid MCO claims, and (3) require MCOs to use separate identifiers for their Medicaid plans. A. MCOs and States Should Be Required to Develop Retrospective 340B Claim Identification Methods for Instances When a 340B Claim Cannot Be Identified at the POS As explained above, pharmacies that use a virtual 340B inventory normally do not know at the POS if a claim is 340B. CMS should mandate that MCOs create retrospective 340B claim identification methods to accommodate these pharmacies. Reversal and resubmission of retrospectively identified claims should not be considered an acceptable method because doing so would be administratively and financially burdensome. Reversal and resubmission of each claim would be time consuming and would be a drain on a safety-net provider s already limited organization (GPO) or some other group purchasing arrangement. 42 U.S.C. 256b(a)(4)(L)(iii). Therefore, we acknowledge that these categories of hospitals could not use their GPO to purchase covered outpatient drugs if they decide not to use 340B for a particular MCO or drug. 10 Notice Regarding HRSA Grant Requirement Participation in the 340B Drug Pricing Program, 65 Fed. Reg (Feb. 9, 2000). 11 State Guide to CMS Criteria for Managed Care Contract Review and Approval 28 (2015).

6 Page 6 of 13 and precious financial resources. A 340B provider would have to devote greater staff time or, in the case of a contract pharmacy arrangement, would likely have to pay the pharmacy more to handle the reversals and resubmissions. POS identification is also unnecessary because, under the proposed rule, MCOs would not provide utilization reports to states in real time. 12 This reporting lag would provide MCOs with an opportunity to employ retrospective 340B claim identification methods that address the operational realties of 340B pharmacies. Some states have already implemented retrospective methods of identifying 340B Medicaid MCO claims. As mentioned above, Oregon Medicaid has developed a system that allows covered entities to identify 340B Medicaid MCO claims on a quarterly basis. 13 Hawaii Medicaid directs covered entities that want to carve in Medicaid managed care to notify the state of that decision and then submit a quarterly spreadsheet that identifies all non-340b medications that were dispensed to Medicaid patients and paid by a Hawaii Medicaid MCO in the prior quarter. 14 The state knows from the spreadsheet the claims for which it can request Medicaid rebates. B. MCOs and States Should be Prohibited from Using HRSA s Medicaid Exclusion File to Identify 340B Medicaid MCO Claims HRSA s exclusion file was developed to implement the statutory requirement that covered entities not bill Medicaid for 340B drugs that are subject to rebates. The statute provides that the Secretary of the Department of Health and Human Services (HHS) will establish a mechanism to ensure that covered entities comply with the requirement not to bill Medicaid for 340B drugs that are subject to rebates, 15 and HRSA s Medicaid exclusion file is the mechanism that the Secretary adopted to carry out this provision. 16 Since 340B Medicaid MCO drugs are not subject to rebates, the exclusion file should not be used by MCOs or states to identify 340B Medicaid managed care drug claims. HRSA clarified in a December 2014 policy release that the exclusion file was intended to be used for FFS Medicaid only. 17 To ensure that 12 Medicaid and Children s Health Insurance Program (CHIP) Programs; Medicaid Managed Care, CHIP Delivered in Managed Care, Medicaid and CHIP Comprehensive Quality Strategies, and Revisions Related to Third Party Liability, 80 Fed. Reg , (proposed June 1, 2015) (to be codified at 42 C.F.R pt (s)(2)). 13 Policy Notification Oregon Medicaid 340B Drug Claims File (Feb. 13, 2015), %20Oregon%20Medicaid%20340B%20Drug%20Claim%20File.pdf. 14 State of Hawaii Department of Human Services, Med-QUEST Division, Health Care Services Branch, Memo No. ACS M13-03 (Mar. 14, 2013), U.S.C 256b(a)(5)(A)(ii). 16 Final Notice Regarding Section 602 of the Veterans Health Care Act of 1992 Duplicate Discounts and Rebates on Drug Purchases, 58 Fed. Reg (June 23, 1993). 17 HRSA Policy Release No (Dec ),

7 Page 7 of 13 intent is not contravened, MCOs and states should be prohibited from using HRSA s exclusion file to identify 340B MCO claims. According to a 2012 HHS Office of Inspector General report, 18 some states are using HRSA s Medicaid exclusion file as a way to identify covered entities that use 340B for all of their Medicaid patients, including those in Medicaid managed care. As discussed above, the file was created to identify only those drugs that would be subject to rebate(s), which in this case would be drugs used for the Medicaid FFS population. It was not set up to identify those covered entities that use 340B for Medicaid managed care, since Medicaid MCO drugs are not subject to rebates under the Medicaid rebate statute. Such use of the file deprives covered entities of their longstanding ability to carve out FFS Medicaid but use 340B drugs for Medicaid MCO patients, if they so choose. C. CMS Should Require MCOs to Use Separate BIN-PCNs for Their Medicaid Plans and to Share the BIN-PCNs with 340B Covered Entities Bank Identification Numbers (BINs) and Processor Control Numbers (PCNs) are used in combination to process electronic pharmacy claims. Some MCOs and PBMs use a single BIN- PCN combination for both their Medicaid and commercial lines of business. This poses a problem for a covered entity outpatient pharmacy or a contract pharmacy because the pharmacy cannot distinguish between Medicaid and commercial claims. If the entity has chosen to use 340B drugs for Medicaid managed care patients, the pharmacy would have to identify more claims than needed as 340B, which could be burdensome depending on the reporting mechanism. If an entity decided to not use 340B for Medicaid managed care patients, the entity would have to exclude more claims than necessary, losing out on 340B savings for non-medicaid commercially insured individuals. To address this issue, CMS should require MCOs or, if applicable, their PBMs to use unique BIN-PCN combinations for their Medicaid Plans and to share the combinations with covered entities. We note that Minnesota Medicaid has already instituted such a requirement for its MCOs. 19 Proposed Provisions: 438.3(s)(3)(ii) The MCO, PIHP, PAHP or State shall not establish procedures described under paragraphs (s)(3) and (s)(3)(i) that violate a 340B covered entity s right to use or not use 340B drugs for MCO, PIHP or PAHP patients. Procedures developed pursuant to paragraphs (s)(3) and (s)(3)(i) must allow a covered entity to identify a claim as 340B after the claim is billed. The MCO, PIHP, PAHP or State shall not use the Health Resources and Services Administration s 18 Office of Inspector General, States Collection of Rebates for Drugs Paid Through Medicaid Managed Care Organizations 13 (Sept. 2012). 19 Minnesota Health Care Programs Provider Update PRX (Mar. 26, 2014), estreleased&ddocname=dhs16_

8 Page 8 of 13 Medicaid Exclusion File to establish procedures developed pursuant to paragraphs (s)(3) and (s)(3)(i). The MCO, PIHP or PAHP must use dedicated bank identification and processor control numbers for Medicaid enrollees and must provide the numbers to 340B covered entities (c)(7) Section 438.3(s)(3), for all contracts. IV. The Rule Should Address Billing and Reimbursement of 340B Medicaid MCO Drugs to Ensure Consistency with 340B Program Intent Twenty-three years ago, Congress enacted the 340B program to give eligible safety-net providers access to discounts to allow these providers to stretch their scarce resources, so that they may reach more patients and furnish more comprehensive services. 20 Covered entities use 340B savings in a variety of ways to benefit the vulnerable patients they serve. The Government Accountability Office has found that providers report using 340B to offset losses incurred from treating some patients, continue providing existing pharmaceutical and clinical services, lower drug costs for low-income patients and serve more patients, and provide additional services, such as case management to facilitate access to appropriate care. 21 CMS should ensure that state capitation rates are sufficient to permit Medicaid MCOs to pay contracted 340B providers at levels that enable them to provide access to care consistent with Medicaid statutory standards and congressional intent for the 340B program. CMS also should prohibit MCOs or their PBMs from using billing information for 340B Medicaid claims to lower reimbursement for 340B commercial claims. A. CMS Should Ensure that Capitation Rates are Sufficient to Enable MCOs to Pay 340B Providers at Levels that Ensure Equal Access for Medicaid Patients CMS should require states to adopt capitation rates that are sufficient to protect beneficiary access to care by ensuring that they support sufficient payment rates to providers, particularly 340B covered entities. Under Section 1902(a)(30)(A) of the Social Security Act, states must adopt payment rates that are sufficient to ensure that Medicaid services are available at least to the extent that they are available to the general population. 22 This requirement should, therefore, apply to the capitated rates that the states pay to MCOs. Accordingly, CMS should clarify that this standard applies, and should implement the standard to ensure that capitated rates support adequate reimbursement to Medicaid providers, especially 340B covered entities. 340B providers serve the lowest-income individuals and are highly dependent on Medicaid payments as a source of the scare resources used to provide access to care. If managed care rates are inadequate, that access will be undermined. 20 H. Rep , 102d Cong., pt.2, at 12 (2d Sess. 1992). 21 Government Accountability Office, Manufacturer Discounts in the 340B Program Offer Benefits, but Federal Oversight Needs Improvement 17 (Sept. 2011) U.S.C. 1396(a)(30)(A).

9 Page 9 of 13 Proposed Provision: 438.3(c) A State s capitation payment to an MCO, PIHP or PAHP must be sufficient to enlist enough providers so that care and services are available under the MCO plan, PIHP or PAHP at least to the extent that such care and services are available to the general population in the geographic area, as required under Section 1902(a)(30)(A) of the Social Security Act. B. CMS Should Safeguard against MCO Reimbursement Practices That Would Undermine the 340B Program s Purpose CMS should require MCOs or their PBMs to develop a firewall between their Medicaid and commercial lines of business to prevent an MCO or PBM from using billing information for 340B Medicaid claims to lower reimbursement for 340B commercial claims. A commercial reimbursement rate for 340B drugs that is very low relative to an MCO or PBM s standard rate would exhaust much of the 340B savings that Congress intended these providers receive when it created the 340B program. Congress did not create the 340B program to operate as a financial pass through from pharmaceutical manufacturers to third-party payers. As such, an MCO s or PBM s reduced commercial reimbursement rates to 340B providers would contravene congressional intent and frustrate the purpose of the 340B program. Additionally, the implications for 340B providers as a result of such a commercial rate would be inconsistent with HRSA s position. 23 HRSA recognizes that the difference between a 340B drug s lower acquisition cost and standard non-340b reimbursement represents the very benefit that Congress intended to give covered entities when it established the 340B program. 24 According to HRSA, if covered entities were not able to access resources freed up by the drug discounts when they bill private health insurance, their programs would receive no assistance from the enactment of section 340B and there would be no incentive for them to become covered entities. 25 Proposed Provision: 438.3(s)(3)(iii) The MCO, PIHP or PAHP shall not use billing information for 340B Medicaid claims to set billing and reimbursement rates for 340B non-medicaid claims. 23 See Letter from CDR Krista Pedley, Office of Pharmacy Affairs, to SNHPA (Nov. 30, 2011), (noting that 340B providers use program savings to provide more care to their vulnerable patients and explaining that [a] reimbursement policy that does not cover full 340B Program costs or does not provide funds to provide these additional services could potentially lead covered entities to withdraw from the 340B Program, which would reduce services to their patients. ). 24 HRSA, Hemophilia Treatment Center Manual for Participating in the Drug Pricing Program Established by Section 340B of the Public Health Service Act (July 2005), 25 Id. (emphasis added).

10 Page 10 of 13 * * * We appreciate the opportunity to provide input on this important issue. Thank you for your consideration of our comments. If you have any questions, please feel free to reach out to any of the attached organizational contacts. Sincerely, National Association of Community Health Centers The Hemophilia Alliance Planned Parenthood Federation of America, Inc. National Family Planning & Reproductive Health Association National Association of Counties National Health Care for the Homeless Council America s Essential Hospitals Children s Hospital Association 340B Health

11 Page 11 of 13 Organizational Contacts Colleen P. Meiman Director of Regulatory Affairs National Association of Community Health Centers Joe Pugliese President The Hemophilia Alliance Amy Yenyo Senior Policy Counsel Planned Parenthood Federation of America, Inc Brian Bowden Associate Legislative Director Health National Association of Counties Beth Feldpush, DrPH Senior Vice President, Advocacy and Policy America s Essential Hospitals bfeldpush@essentialhospitals.org Maureen Testoni Senior Vice President & General Counsel 340B Health maureen.testoni@340bhealth.org Robin R. Summers, JD Senior Policy Director National Family Planning & Reproductive Health Association rsummers@nfprha.org

12 Page 12 of Standard contract requirements. Proposed Provisions 26 (c) Payment. The final capitation rate for each MCO, PIHP or PAHP must be specifically identified in the applicable contract submitted for CMS review and approval. The final capitation rates must be based only upon services covered under the State plan and additional services deemed by the State to be necessary to comply with the Mental Health Parity and Addiction Equity Act, and represent a payment amount that is adequate to allow the MCO, PIHP or PAHP to efficiently deliver covered services to Medicaid-eligible individuals in a manner compliant with contractual requirements. A State s capitation payment to an MCO, PIHP or PAHP must be sufficient to enlist enough providers so that care and services are available under the MCO plan, PIHP or PAHP at least to the extent that such care and services are available to the general population in the geographic area, as required under Section 1902(a)(30)(A) of the Social Security Act. (s) Requirements for MCOs, PIHPs, or PAHPs that provide covered outpatient drugs. MCOs, PIHPs or PAHPs that are contractually obligated to provide coverage of covered outpatient drugs must include the following requirements: (1) The MCO, PIHP or PAHP provides coverage of covered outpatient drugs as defined in section 1927(k)(2) of the Act, that meets the standards for such coverage imposed by section 1927 of the Act as if such standards applied directly to the MCO, PIHP, or PAHP. (2) The MCO, PIHP, or PAHP reports drug utilization data that is necessary for States to bill manufacturers for rebates in accordance with section 1927(b)(1)(A) of the Act no later than 45 calendar days after the end of each quarterly rebate period. Such utilization information must include, at a minimum, information on the total number of units of each dosage form, strength, and package size by National Drug Code of each covered outpatient drug dispensed or covered by the MCO, PIHP, or PAHP. (3) The MCO, PIHP or PAHP establishes procedures to exclude utilization data for covered outpatient drugs that are subject to discounts under the 340B drug pricing program from the reports required under paragraph (s)(2) of this section. (i) A State may establish procedures that do not rely upon utilization data reported by the MCO, PIHP or PAHP to identify covered outpatient drugs that are subject to discounts under the 340B drug pricing program. (ii) The MCO, PIHP, PAHP or State shall not establish procedures described under paragraphs (s)(3) and (s)(3)(i) that violate a 340B covered entity s right to use or 26 The proposed provisions are underlined.

13 Page 13 of 13 not use 340B drugs for MCO, PIHP or PAHP patients. Procedures developed pursuant tp paragraphs (s)(3) and (s)(3)(i) must allow a covered entity to identify a claim as 340B after the claim is billed. The MCO, PIHP, PAHP or State shall not use the Health Resources and Services Administration s Medicaid Exclusion File to establish procedures developed pursuant to paragraphs (s)(3) and (s)(3)(i). The MCO, PIHP or PAHP must use dedicated bank identification and processor control numbers for Medicaid enrollees and must provide the numbers to 340B covered entities. (iii) The MCO, PIHP or PAHP shall not use billing information for 340B Medicaid claims to set billing and reimbursement rates for 340B non-medicaid claims. (4) The MCO, PIHP or PAHP must operate a drug utilization review program that complies with the requirements described in section 1927(g) of the Act, as if such requirement applied to the MCO, PIHP, or PAHP instead of the State. (5) The MCO, PIHP or PAHP must provide a detailed description of its drug utilization review program activities to the State on an annual basis. (6) The MCO, PIHP or PAHP must conduct a prior authorization program that complies with the requirements of section 1927(d)(5) of the Act, as if such requirements applied to the MCO, PIHP, or PAHP instead of the State State Plan requirements. (c) State plan assurances. The plan must provide assurances that the State meets applicable requirements of the following statute and regulations: (1) Section 1903(m) of the Act, for MCOs and MCO contracts. (2) Section 1905(t) of the Act, for PCCMs and PCCM or PCCM entity contracts. (3) Section 1932(a)(1)(A) of the Act, for the State s option to limit freedom of choice by requiring beneficiaries to receive their benefits through managed care entities. (4) This part, for MCOs, PCCMs, and PCCM entities. (5) Part 434 of this chapter, for all contracts. (6) Section 438.4, for payments under any risk contracts, and of this chapter for payments under any nonrisk contracts. (7) Section 438.3(s)(3), for all contracts.