340B State Level Rules Overview

Welcome to RxParadigm’s series on 340B Program State-Level Legislation. State-level initiatives to manage the 340B Program vary greatly across the country, and over 30 states have introduced or passed legislation to protect the 340B program. In this series over the next few weeks, we will define and analyze various states’ policies around contract pharmacy protection laws, MCO pharmacy benefits carve out, modifier rules for Medicaid and commercial claims, 340B claims identification and PBM reimbursement protection law.

The past 5 years have seen several disruptions to 340B program integrity, leading States to introduce protective legislation. These disruptions include:

Contract Pharmacy Restrictions

First is the rise of contract pharmacy restrictions. Frustrated by 340B Medicaid double payments and commercial rebate double payments in addition to growing 340B sales, manufacturers introduced restrictions on Covered Entities using contract pharmacies to administer 340B drugs. In 2023 alone, drug manufacturers faced an estimated $20 billion in overpayments due to duplicate discounts from 340B claims also submitted for rebate discounts by Medicaid, Medicare, and commercial payers. Manufacturers hoped to tackle these financial losses through 340B program restrictions.  

 8 states have introduced contract pharmacy protection laws – laws to protect Covered Entities from manufacturer driven restrictions on the use of contract pharmacies to administer 340B drugs. These states are Kansas, Maryland, Louisiana, Missouri, Minnesota, Mississippi, West Virginia and Arkansas.

PBM Discriminatory Practices

Second are the discriminatory practices PBMs use against 340B Covered Entities. Practices include reimbursing 340B covered entities at a lower rate than non-340B entities, charging fees that are not charged to non-340B entities, and excluding a pharmacy from a network based on participation in the 340B program. PBMs can make additional profit from the 340B program, rather than distributing savings to 340B CEs.

Over 30 states have introduced PBM reimbursement protection legislation. This legislation requires that PBMS do not reimburse 340B CEs and contract pharmacies at a lower rate than non-340B CEs, charge fees to 340B CEs that non-340B CEs are not charged, add administrative requirements specific to 340B Ces, or add requirements that interfere with receiving 340B drugs.

Lack of Reliable 340B Identification

Third is the lack of reliable 340B identification tools. 340B Claims Modifiers have become a common but ineffective practice used to identify 340B drugs after point of sale. An IQVIA study found that 50% of claims used a 340B modifier at entity-owned pharmacies. The study concluded that modifiers are not sufficient to identify 340B drugs.

Several states, like New York, have implemented reporting requirements on Covered Entities to include claims modifiers on 340B drugs billed through Medicaid/Medicare. These reporting requirements are designed to help States avoid double payments on Medicaid/Medicare and 340B discounts.

MCO Carve Out

Fourth is carving out pharmacy benefits from Medicaid Managed Care Organizations (MCOs). Historically audits have found Medicaid Managed Care Organizations (MCO) do not comply with all Federal and State Rules.[i]

Some states are carving out pharmacy benefits from managed care and moving to a Fee for Service (FFS). In a FFS model, the CE can choose to carve-in and buy at the 340B price, however, in most states they reimburse CEs at the 340B price. As a result, the 340B discount benefit goes to the state rather than the CEs.  As reported in the KFF Medicaid Budget Survey 2024-2025, 8 states nationwide have models to carve out pharmacy benefits and move into a FFS model.  

Conclusion

States are implementing a wide array of tools to protect the 340B program. In the next 8 articles in this series, we will focus on each of the 8 states that have contract pharmacy protection laws, diving into detail on the status of their legislative rules. Thanks for reading, and make sure to check out the rest of our series.

[i] Transition (Carve-Out) of Pharmacy Benefit from Managed Care to Fee-For-Service (FFS)