A federal court has struck down a California "carve in" law requiring Medicaid safety net providers to only dispense drugs purchased at a discount, although the ruling also implied that type of mandate would be permissible with federal approval.
In 2009, California changed its Medi-Cal law to require safety net providers to buy all their drugs through Medicaid's 340B program, which was subsequently challenged by the AIDS Healthcare Foundation, a nonprofit with clinics and speciality pharmacies in several states.
Medicaid's 340B Drug Pricing Program was created in 1992, replacing a controversial rebate program with a system requiring drug manufacturers to give safety net providers a discount, though a pricing agreement with the Centers for Medicare & Medicaid Services, and also give safety net providers the same discount for outpatient drugs that they give to state Medicaid agencies.
But safety net providers participating in the 340B program could also purchase drugs for Medicaid beneficiaries on the open the open market -- until 2009 in California.
California amended its Welfare and Institutions Code to require 340B participants to only dispense 340B-purchased drugs to Medi-Cal beneficiaries as a way to streamline the Department of Health Care Services' claims processing and to reduce the possibility of double discounts, drug maker rebate disputes and overpayments.
That also led to some lower reimbursements for clinics and speciality pharmacies, and could also lead to reduced access to some drugs, the AIDS Healthcare Foundation argued.
California did seek approval from CMS with a state plan amendment, but at the time of the ruling, the federal agency had not weighed in. The Department of Health Care Services also maintained that the state plan amendment proposal did not need to consider the issues of efficiency, economy, quality and access related to rate reductions, as specified in a provision of Medicaid law known as section 30(A).
In its lawsuit against the Department, the AIDS Healthcare Foundation argued that the mandate for 340B drug purchasing amounted to discrimination under the 14th Amendment's equal protection clause and that it it violated several Medicaid rules, such as the section 30(A) considerations.
The U.S. District Court for Central California rejected the discrimination argument, but stopped enforcement of the law, with a permanent injunction, on the grounds of federal preemption and lack of federal approval. The California law, the court ruled, required CMS permission before enforcement and also was not in compliance with Medicaid's section 30(A) requirements for considering efficiency, economy, quality and access for Medi-Cal beneficiaries and costs for 340B covered entities (the clinics and drug makers).
But the court's decision does suggest that California's 340B mandate law would be permissible with proper federal approval, as Alan Arville, an attorney with the firm Ober Kaler, noted in a JDSurpa blog.
The "national impact on similar mandatory 340B carve-in provisions enacted or being considered in other states may be limited to putting the states 'on notice' that, prior to enactment, it must obtain CMS approval and consider the host of factors" required in section 30(A), Arville wrote.