Department of Health and Human Services 
OFFICE OF 
   
INSPECTOR GENERAL 
 
 
 
 
 
 
 
 
S M  P
TATE  EDICAID  OLICIES AND 
 
O A
VE  RSIGHT  CTIVITIES 
 
R 340B-P
ELATED TO  URCHASED 
 
  D  
RUGS
 
 
 
 
Daniel R. Levinson  
Inspector General 
 
June 2011 
OEI-05-09-00321   
   
 E X E C U T I V E   S U M M A R Y  
OBJECTIVE
 
To describe State Medicaid agencies policies and oversight activities 
related to drugs purchased under the 340B Drug Discount Program. 
BACKGROUND 
The 340B Drug Discount Program (340B Program) requires drug 
manufacturers to provide covered outpatient drugs to certain eligible 
health care entities, known as covered entities, at or below statutorily 
defined discount prices (340B ceiling prices).  After a Federal qui tam 
lawsuit alleged that covered entities overcharged Medicaid for drugs 
purchased under the 340B Program (340B-purchased drugs), Senator 
Charles Grassley requested that the Office of Inspector General describe 
Medicaid reimbursement practices related to the 340B Program. 
The Health Resources and Services Administration (HRSA), the agency 
that administers the 340B Program, has issued guidance regarding 
billing of 340B-purchased drugs.  In 1993, HRSA directed covered 
entities to bill State Medicaid agencies at actual acquisition cost (AAC) 
for 340B-purchased drugs.  In 2000, HRSA issued new guidance 
directing covered entities to instead refer to State Medicaid agencies 
policies for applicable billing policies.  The Patient Protection and 
Affordable Care Act (ACA) requires the Secretary to issue new guidance 
describing methodologies available to covered entities for billing 
340B-purchased drugs to State Medicaid agencies. 
State Medicaid agencies generally create State-specific billing and 
reimbursement policies and may also choose to do so specifically for 
340B-purchased drugs that covered entities dispense to Medicaid 
patients (referred to as 340B policies).  The Centers for Medicare & 
Medicaid Services (CMS), which administers the Medicaid program at 
the Federal level, does not require State Medicaid agencies to set 340B 
policies. 
When reimbursing for 340B-purchased drugs, State Medicaid agencies 
have a responsibility to accurately reimburse covered entities and 
appropriately claim Medicaid rebates from drug manufacturers.  State 
Medicaid agencies can use prepay edits and postpay reviews to ensure 
accurate reimbursements.  With respect to rebates, State Medicaid 
agencies should exclude claims for 340B-purchased drugs (340B claims) 
from Medicaid rebate requests to prevent subjecting drug 
manufacturers to duplicate discounts (i.e., selling 340B-purchased drugs 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  i   
   
E X E C U T I V E   S U M M A R Y  
to covered entities at the discounted ceiling prices and providing 
Medicaid rebates on the same drugs). 
HRSA created the Medicaid Exclusion File to help State Medicaid 
agencies identify 340B claims.  The ACA requires that the Secretary 
develop procedures for covered entities to annually update their 
information in HRSAs covered-entity database, from which the file is 
derived. 
In March 2010, we surveyed 50 State Medicaid agencies and the District 
of Columbias Medicaid agency (hereinafter referred to as States) about 
their policies and oversight activities related to 340B-purchased drugs.  
We received responses from all 51 States. 
FINDINGS 
Approximately half of States have written 340B policies that direct 
covered entities to bill Medicaid at cost for 340B-purchased drugs.  
Twenty-five States reported having written policies that direct covered 
entities to bill at AAC for 340B-purchased drugs, while 25 States do not 
have written policies.  One State has a written policy to reimburse 
340B-purchased drugs at rates other than AAC.  Over half of States 
without written 340B policies reported that they rely on HRSAs 1993 
guidance directing covered entities to bill States at AAC, despite 
subsequent HRSA guidance directing covered entities to refer to States 
policies.  Based on the 1993 HRSA guidance, these States reported that 
they expect covered entities to bill at AAC. 
States do not have necessary pricing information to create prepay 
edits for 340B-purchased drugs; 20 States conduct postpay reviews 
to identify overpayments.  States do not have access to AAC or 340B 
ceiling prices because of logistical and legal issues.  States cannot create 
effective prepay edits because without AAC or 340B ceiling prices they are 
unable to tell when the amount that covered entities bill exceeds 
established State policies, which are typically AAC.  Twenty States 
conduct postpay reviews to identify overpayments for 340B-purchased 
drugs. 
Over half of States developed alternatives to the Medicaid Exclusion 
File to identify 340B claims and prevent duplicate discounts.  Thirty 
States reported that they developed alternatives to the Medicaid Exclusion 
File to identify 340B claims and prevent duplicate discounts.  Of these 
States, 26 contacted all or some of the covered entities in their States 
directly and created their own lists of covered entities that dispense 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  ii   
   
E X E C U T I V E   S U M M A R Y  
340B-purchased drugs to Medicaid patients.  Nine of the thirty States 
instruct covered entities to identify specific 340B claims using the 
National Council for Prescription Drug Plan (NCPDP) Telecommunication 
Standard, an electronic standard used in pharmacies prescription drug 
transactions, and two States instruct covered entities to bill using an 
alternative billing identification number.  Ten of the thirty States that use 
alternatives reported that they do so because of inaccuracies in the 
Medicaid Exclusion File. 
Fourteen States use only the Medicaid Exclusion File to identify 340B 
claims, and seven States reported that they do not use any method to 
identify 340B claims. 
RECOMMENDATIONS 
Based on our findings, we recommend that: 
CMS direct States to create written 340B policies.  CMS should direct 
States to create written 340B policies if they do not have them in place.  
CMS could also encourage States to consider the benefits and 
drawbacks of different 340B policies before setting their policies. 
CMS inform States about tools they can use to identify claims for 
340B-purchased drugs.  CMS should inform States that they can have 
covered entities use the NCPDP Telecommunication Standard to 
identify 340B claims. CMS could also direct States to the Medicaid 
Exclusion File tutorial on HRSAs Web site. 
HRSA share 340B ceiling prices with States.  Providing 340B ceiling 
prices to States will help them create prepay edits to oversee their 
reimbursements for 340B-purchased drugs.  Although the ACA gave 
HRSA authority to share 340B ceiling prices with covered entities, 
HRSA would have to seek legislative authority to share 340B ceiling 
prices with States. 
HRSA, in conjunction with CMS, improve the accuracy of the 
Medicaid Exclusion File.  HRSA should instruct covered entities to 
update their information in the Medicaid Exclusion File.  HRSA could 
also work with States to ensure that covered entities information in the 
file is correct.  In addition, CMS could instruct States to notify HRSA if 
they find discrepancies between their records and the Medicaid 
Exclusion File. 
 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  iii   
   
E X E C U T I V E   S U M M A R Y  
AGENCIES COMMENTS AND OFFICE OF INSPECTOR 
GENERAL RESPONSE 
CMS concurred with our recommendations.  To address them, CMS 
plans to (1) inform States that they should incorporate 340B policies 
into their Medicaid State Plans, (2) inform States of alternative 
methods of identifying 340B claims that we identified in this report, and 
(3) facilitate communication between HRSA and States by providing a 
list of State Medicaid pharmacy directors to HRSA and instructing 
States to contact HRSA when errors in the Medicaid Exclusion File are 
found. 
HRSA also concurred with our recommendations.  However, it did not 
specify any actions it would take in response to them.
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  iv   
 T A B L E   O F   C O N T E N T S  
EX ECUT I VE  SUM M ARY  .....................................i 
 
 
I NT RO DU CT I O N  ............................................ 1 
 
 
F I NDI NG S  .................................................. 9 
  Approximately half of States have written 340B policies that 
direct covered entities to bill Medicaid at cost for 
340B-purchased drugs  ................................... 9 
  States do not have necessary pricing information to create 
prepay edits for 340B-purchased drugs; 20 States conduct 
postpay reviews to identify overpayments ...................  11 
  Over half of States developed alternatives to the Medicaid 
Exclusion File to identify 340B claims and prevent duplicate 
discounts ..............................................  13 
   
RECO M M END AT I O N S  .....................................  16 
  Agencies Comments and Office of Inspector General Response ..  17 
 
 
APP EN DI X ES  .............................................  19 
  A:  State Medicaid Agencies 340B Policies ..................  19 
  B:  Agencies Comments ..................................  21 
 
 
ACKNO WL E DG M E N T S .....................................  26 
   
   
I N TI NR OT DR UO CD TU I CO TN I  O N  
OBJECTIVE 
To describe State Medicaid agencies policies and oversight activities 
related to drugs purchased under the 340B Drug Discount Program 
(340B Program). 
BACKGROUND 
A 2005 Federal qui tam lawsuit alleged that some 340B-covered entities 
overcharged a State Medicaid agency for covered outpatient drugs.  
Partly in response to this lawsuit, Senator Charles Grassley requested 
that the Office of Inspector General (OIG) describe Medicaid 
reimbursement practices related to the 340B Program. 
The 340B Program 
The Veterans Health Care Act of 1992 established the 340B Program in 
section 340B of the Public Health Service Act (PHS Act).1  The 340B 
Program requires drug manufacturers participating in Medicaid to 
provide discounted covered outpatient drugs to certain eligible health 
care entities, known as covered entities.  Congress intended for the 
savings from discounted drugs purchased under the 340B Program to 
enable [participating] entities to stretch scarce Federal resources as far 
as possible, reaching more eligible patients and providing more 
comprehensive services.2 
Covered entities include disproportionate share hospitals, family 
planning clinics, and federally qualified health centers, among others.3  
As of October 2010, approximately 15,000 covered-entity locations were 
enrolled in the 340B Program. 
To participate in the 340B Program, covered entities must register with 
the Health Resources and Services Administration (HRSA), the agency 
responsible for administering the 340B Program.  After the entity has 
registered, HRSA enters the entitys information into HRSAs 
covered-entity database.4  Provisions in the Patient Protection and 
 
1 Veterans Health Care Act of 1992, P.L. 102-585  602; PHS Act  340B; 42 U.S.C.  
256b. 
2 H.R. Rep. No. 102-384, at 12 (1992)(Conf. Rep.). 
3 42 U.S.C.  256b(a)(4) enumerates the complete list of the types of entities eligible to 
become 340B-covered entities. 
4 The 340B Program registration form may be found on HRSAs Web site.  Accessed at 
http://www.hrsa.gov on February 10, 2010. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  1   
   
I N T R O D U C T I O N  
Affordable Care Act (ACA) require HRSA to develop procedures for 
covered entities to annually update their information in the 
covered-entity database.5 
Once approved, covered entities may purchase and dispense drugs 
under the 340B Program (hereinafter referred to as 340B-purchased 
drugs) through in-house pharmacies, or they may enter into contracts 
with retail pharmacies to dispense 340B-purchased drugs on their 
behalf.6  A retail pharmacy dispensing 340B-purchased drugs on behalf 
of a covered entity is referred to as a contract pharmacy. 
Covered entities may purchase drugs at or below 340B ceiling prices, 
which are the maximum prices drug manufacturers can charge for each 
340B-purchased drug.7  The 340B ceiling price is calculated using a 
statutorily defined formula based on the average manufacturer price 
(AMP) of drugs.  In general, AMP is the average price paid to drug 
manufacturers for drugs distributed to retail community pharmacies.8  
Drug manufacturers must calculate and report AMP to the Centers for 
Medicare & Medicaid Services (CMS).  The 340B ceiling price of a drug 
is generally much lower than its retail price. 
Historically, neither CMS nor HRSA have shared AMP or the calculated 
340B ceiling prices with State Medicaid agencies.  The Deficit Reduction 
Act of 2005 gave CMS authority to share AMP with State Medicaid 
agencies.  However, a Federal court injunction prohibited CMS from 
sharing AMP with State Medicaid agencies.9, 10  The injunction was 
withdrawn in December 2010.  HRSA has not shared 340B ceiling prices 
with State Medicaid agencies as it does not have legislative authority to 
do so.  The ACA provided HRSA with the authority to share 340B 
ceiling prices with covered entities.11 
 
 
5 ACA, P.L. 111-148  7102(a); PHS Act  340B(d)(2)(B)(i); 42 U.S.C.  256b(d)(2)(B)(i). 
6 61 Fed. Reg. 43549, 43555 (Aug. 23, 1996). 
7 42 U.S.C.  256b(a)(1). 
8 42 U.S.C  1396r-8(k)(1).  The statutory definition of AMP was redefined by the ACA to 
include direct manufacturer sales to retail community pharmacies as well as sales to 
wholesalers that supply retail community pharmacies, and to clarify which types of 
discounts should be excluded from the calculation.  ACA, P.L. 111-148  2503(a)(2). 
9 42 U.S.C.  1396r-8(b)(3). 
10 National Association of Chain Drug Stores v. Leavitt, U.S. District Court for the 
District of Columbia, Dec. 19, 2007, Civil Action No. 1:07cv02017 (RCL). 
11 ACA, P.L. 111-148  7102(a), PHS Act  340B(d)(1)(B)(iii), 42 U.S.C. 256b(d)(1)(B)(iii). 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  2   
   
I N T R O D U C T I O N  
 
Medicaid Prescription Drug Benefit 
All State Medicaid agencies offer outpatient prescription drug coverage 
and reimburse retail pharmacies for covered outpatient drugs dispensed to 
Medicaid patients.  Overall, the Medicaid program spent approximately 
$23 billion on prescription drug coverage in 2009.12  CMS monitors the 
Medicaid program at the Federal level. 
State Medicaid agencies are expected to act as prudent buyers of drugs.  
State Medicaid agencies establish reimbursement methodologies for the 
ingredient cost of covered outpatient drugs.  These reimbursement 
methodologies typically apply a discount to published prices, such as 
average wholesale price (AWP).13, 14  These reimbursement 
methodologies are included in a State Medicaid agencys State plan and 
must be approved by CMS.15 
State Medicaid agencies must also set a reasonable dispensing fee for all 
covered outpatient drugs they reimburse.16  This fee reimburses a 
pharmacys cost of providing the drug to a Medicaid patient.17  
Dispensing fees ranged from $1.50 to $12.50 per prescription in 2009.18  
Some State Medicaid agencies set higher dispensing fees for generic 
drugs to encourage generic prescribing. 
State Medicaid agencies can use prepay edits and postpay reviews to 
prevent overpayments and ensure that reimbursements for covered 
outpatient drugs are consistent with established policies.  Prepay edits 
enable processing systems to compare claim amounts to established 
reimbursement limits and automatically pay all or part of a claim, deny 
all or part of a claim, or suspend all or part of a claim for manual 
 
12 2009 Medicaid utilization data from CMS. 
13 Generally, the AWP is the price that a drug manufacturer sets for a drug and reports 
in publicly available sources. 
14 Studies and audits by OIG and other experts found that the AWP overstates the prices 
pharmacies pay by as much as 10 to 20 percent for brand-name prescription drugs.  See 
OIG, Office of Audit Services, Medicaid Pharmacy  Actual Acquisition Cost of Brand-Name 
Prescription Drug Products  (A-06-00-00023) and Congressional Budget Office, Prices for 
Brand-Name Drugs Under Selected Federal Programs  (June 2005). 
15 42 CFR  447.518(a). 
16 42 CFR  447.512(b)(1). 
17 42 CFR  447.502. 
18 This range excludes dispensing fees for home intravenous therapy.  Medicaid 
Prescription Reimbursement Information by State  Quarter Ending September 2009.  
Accessed at http://www.cms.hhs.gov on October 29, 2009. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  3   
   
I N T R O D U C T I O N  
review.  Postpay reviews include formal audits and ongoing monitoring 
of billing patterns.  Audits typically involve document reviews or site 
visits to identify overpayments and may result in monetary recovery. 
340B Program and Medicaid 
Covered entities choose whether to dispense 340B-purchased drugs to 
Medicaid patients, which affects how they interact with State Medicaid 
agencies.19  If covered entities choose not to dispense 340B-purchased 
drugs to Medicaid patients, they instead dispense drugs that were 
purchased outside of the 340B Program.  Because of that, covered 
entities can bill State Medicaid agencies at the standard reimbursement 
rates that those agencies have established for all retail pharmacies.  
Covered entities might make this choice because their State Medicaid 
agencies standard reimbursement rates for covered outpatient drugs 
are higher than the purchase prices.20  However, if covered entities elect 
to dispense 340B-purchased drugs to Medicaid patients, specific 340B 
policies and guidance apply.  Approximately 42 percent of covered 
entities indicated that they had dispensed 340B-purchased drugs to 
Medicaid patients at the time of our study (first quarter of 2010).21 
State Medicaid agencies policies for 340B-purchased drugs.  State Medicaid 
agencies may set specific policies for covered entities that dispense 
340B-purchased drugs to Medicaid patients (340B policies), though 
CMS does not require them to do so.  If a State Medicaid agencys          
340B policy requires covered entities to bill and be reimbursed for 
340B-purchased drugs at their actual acquisition costs (AAC), then the 
State Medicaid agency receives the full benefit of the 340B discount.  If 
a State Medicaid agencys 340B policy allows covered entities to bill and 
be reimbursed for 340B-purchased drugs above AAC, then the State 
Medicaid agency shares a portion of the savings from the 340B discount 
with covered entities. 
HRSA guidance to covered entities about billing State Medicaid agencies.  HRSA 
has twice issued guidance for covered entities that bill State Medicaid 
 
19 65 Fed. Reg. 13983, 13984 (Mar. 15, 2000). 
20 The amount Medicaid reimburses, based on AWP, is typically higher than the 340B 
price, which is based on AMP.  The difference in reimbursement for 340B- versus 
non-340B-purchased drugs is discussed in previous OIG reports.  See OIG, Cost 
Containment of Medicaid HIV/AIDS Drug Expenditures, OEI-05-99-00611, July 2001; and 
OIG, Medicaids Mental Health Drug Expenditures, OEI-05-02-00080, August 2003.   
21 According to the Medicaid Exclusion File, a subset of HRSAs covered entity database. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  4   
   
I N T R O D U C T I O N  
agencies for 340B-purchased drugs.  In 1993, HRSA issued guidance 
stating: 
When a covered entity submits a bill to the State Medicaid 
agency for a drug purchased by or on behalf of a Medicaid 
beneficiary, the amount billed shall not exceed the entitys 
actual acquisition cost for the drug, as charged by the 
manufacturer. ... This will assure that the discount to the 
covered entity will be passed on to the State Medicaid 
agency.22 
In 2000, HRSA altered its guidance, stating that it was reconsidering 
the AAC provision in its 1993 guidance, and directed covered entities to 
refer to their respective Medicaid State agency drug reimbursement 
guidelines for applicable billing limits.23  Provisions in the ACA require 
the development of more detailed guidance describing methodologies 
and options available to covered entities for billing covered drugs to 
State Medicaid agencies in a manner that avoids duplicate discounts.24 
Chart 1 shows the policies and guidance related to covered entities 
dispensing 340B-purchased drugs to Medicaid patients. 
 
 
 
 
 
 
 
 
 
 
 
 
 
22 58 Fed. Reg. 27293, 27293 (May 7, 1993). 
23 65 Fed. Reg. 13983, 13984 (Mar. 15, 2000). 
24 ACA, P.L. 111-148  7102(a), PHS Act  340B(d)(2)(B)(iii), 42 U.S.C. 
 256b(d)(2)(B)(iii). 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  5   
   
I N T R O D U C T I O N  
Chart 1:  Policies and Guidance for Covered Entities That Dispense 
340B-Purchased Drugs to Medicaid Patients 
 
HRSA  CMS 
Covered entities should 
follow State Medicaid  Does not require State 
agencies reimbursement  Medicaid agencies to 
policies for  have 340B policies* 
340B-purchased drugs 
 
Covered entities  M34a0yB h paovleic ies  Staateg eMnecdieicsa id 
Source:  OIG analysis of HRSA guidance and State Medicaid agencies 340B policies, 2010. 
* CMS issued guidance to State Medicaid agencies in 1993 and 2000 advising them that covered entities are required to bill at 
AAC. 
Preventing duplicate discounts.  State Medicaid agencies obtain rebates 
from drug manufacturers for covered outpatient drugs dispensed to 
Medicaid patients.25  To request Medicaid rebates, State Medicaid 
agencies send drug manufacturers quarterly invoices based on the type 
and quantity of drugs that the State reimbursed (utilization data).26 
There is a potential for drug manufacturers to pay duplicate discounts if 
they pay Medicaid rebates to State Medicaid agencies for drugs that 
they have already sold to covered entities at discounted prices through 
the 340B Program.  Duplicate discounts are prohibited by law.27  To 
prevent duplicate discounts when claiming Medicaid rebates, State 
Medicaid agencies need to identify claims for 340B-purchased drugs 
(340B claims) and exclude them from the utilization data submitted to 
drug manufacturers. 
 
25 Drug manufacturers must enter into rebate agreements with the Secretary of the 
Department of Health & Human Services and pay quarterly rebates to State Medicaid 
agencies for their drugs to qualify for Medicaid reimbursement.  Social Security Act,                 
 1927(a)(1). 
26 42 U.S.C  1396r-8(b)(2)(A). 
27 42 U.S.C.  256b(a)(5)(A). 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  6   
   
I N T R O D U C T I O N  
HRSA established a Medicaid Exclusion File to help State Medicaid 
agencies identify 340B claims.28  The file, a subset of HRSAs covered 
entity database, lists covered entities that dispense 340B-purchased drugs 
to Medicaid patients.  State Medicaid agencies should be able to use this 
database to identify and exclude all of the 340B claims associated with 
these covered entities from the utilization data submitted to drug 
manufacturers. 
Previous OIG Studies 
OIG has conducted several studies on the 340B Program.  Previous OIG 
studies found inaccuracies in covered entities contact and participation 
information in HRSAs covered-entity database.29  OIG also found that 
because of systemic problems with the accuracy and reliability of 
HRSAs record of 340B ceiling prices, HRSA was unable to appropriately 
oversee the 340B Program.30  Finally, OIG found that covered entities 
were paying more than 340B ceiling prices, resulting in projected 
overpayments of $3.9 million in June 2005.31 
METHODOLOGY 
Scope 
In response to the congressional request to look at reimbursement 
practices related to 340B-purchased drugs, this study describes State 
Medicaid agencies policies for covered outpatient drugs purchased under 
the 340B Program.  It also describes State Medicaid agencies oversight of 
their reimbursements for 340B-purchased drugs, including State Medicaid 
agencies ability to prevent overpayments for 340B-purchased drugs and 
duplicate discounts. 
This study does not include information on covered entities knowledge of 
States policies or oversight.  This study collected information from State 
Medicaid agencies, not from covered entities.  Further, this study does not 
assess how different State Medicaid agencies policies affect States or 
 
28 58 Fed. Reg. 27293, 27293 (May 7, 1993). 
29 OIG, Deficiencies in the 340B Drug Pricing Programs Database, OEI-05-02-00071, 
June 2004. 
30 OIG, Deficiencies in Oversight of the 340B Drug Pricing Program, OEI-05-02-00072, 
October 2005. 
31 OIG, Review of 340B Prices, OEI-05-02-00073, July 2006. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  7   
   
I N T R O D U C T I O N  
covered entities finances.  Finally, this study does not include information 
about State Medicaid agencies policies for physician-administered drugs.32 
Data Collection and Analysis 
In March 2010, we surveyed 50 State Medicaid agencies and the District of 
Columbias Medicaid agency (hereinafter referred to as States).  We asked 
about State policies for 340B-purchased drugs, activities to monitor 
payments and enforce their policies, identification of 340B claims, and 
communication with CMS or HRSA regarding the 340B Program. 
We conducted a pretest of the survey with two States and, where 
appropriate, revised the survey based on pretesters feedback. 
We emailed the survey to each States Medicaid director with instructions 
to consult with or delegate the survey to a pharmacy director or other 
official familiar with the States policies and oversight regarding 
340B-purchased drugs.  We received 51 replies for a 100-percent response 
rate.  We followed up with States to clarify survey responses, where 
necessary. 
For the purposes of this study, we counted a State as having a 340B policy 
only if it was documented in writing.  We asked States to identify the 
types of documents that contained their policies and for citations when the 
policies were written in State laws, administrative codes, or pharmacy 
manuals.  In some cases, we consulted the text of the written policies to 
clarify survey responses. 
We exported survey results from Adobe LiveCycle to Microsoft Excel for 
analysis.  We analyzed the survey data using Microsoft Excel.  We also 
analyzed States narrative responses for additional themes. 
Limitations 
This study relies on self-reported survey data from States.  We did not 
verify States responses. 
Standards 
This study was conducted in accordance with the Quality Standards for 
Inspection and Evaluation issued by the Council of the Inspectors 
General on Integrity and Efficiency. 
 
32 A physician-administered drug is a prescription drug that is directly administered to a 
patient by a physician during an outpatient office or hospital visit (e.g., certain injectible 
drugs).  Because prescriptions for physician-administered drugs are not filled at retail 
pharmacies, they are generally not covered by the same reimbursement policies as other 
outpatient drugs. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  8   
   
 F I N D I N G S  
Approximately half of States have written 340B  Twenty-five States reported having 
policies that direct covered entities to bill  340B policies that direct covered 
entities to bill at cost (i.e., AAC) for 
Medicaid at cost for 340B-purchased drugs  
340B-purchased drugs.  The 
policies appear in documents such as State laws, State administrative 
codes, State Medicaid pharmacy manuals, official letters to covered 
entities, and written agreements between States and covered entities. 
Another State reported having a written 340B policy.  However, its 
policy is to reimburse 340B-purchased drugs at AWP price minus a 
certain percentage.  The percentages of AWP used in this calculation 
vary by each covered entity and range from 23 to 36 percent.33 
See Appendix A for a list of States and whether they have written          
340B policies. 
Seven of the twenty-five States that have written 340B policies 
directing covered entities to bill at AAC provide a higher dispensing fee 
for 340B-purchased drugs than for non-340B-purchased drugs.34  These 
States reported that they offer a higher dispensing fee for two main 
reasons.  First, States reported offering a higher dispensing fee to 
extend additional resources to covered entities.  Second, States reported 
that they set a higher dispensing fee for 340B-purchased drugs to 
motivate covered entities to dispense such drugs to Medicaid patients.  
Given that 340B ceiling prices are considerably lower than States 
standard reimbursement rates for drugs, States might save money 
(even when paying a higher dispensing fee) if more covered entities 
dispensed 340B-purchased drugs to Medicaid patients. 
Twenty-five States do not have written 340B policies 
Of the 25 States that do not have written 340B policies, 16 reported that 
they want covered entities to bill at AAC for 340B-purchased drugs.  
Fifteen of these sixteen States reported that they do not have written 
340B policies because they believe that HRSAs 1993 guidance to 
covered entities to bill at AAC is in effect.  However, HRSAs 2000 
guidance withdrew the AAC provision of the 1993 guidance and directed 
covered entities to follow State guidelines for billing 340B-purchased 
drugs.35  States that rely on HRSAs old guidance and do not have 
 
33 The States reimbursement for non-340B-purchased drugs is AWP minus 11.5 percent. 
34 Connecticut, Florida, Louisiana, Massachusetts, Oregon, Vermont, and West Virginia.  
35 65 Fed. Reg. 13984 (Mar. 15, 2000). 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  9   
   
F I N D I N G S  
written policies may not be able to enforce their expectation that 
covered entities bill at AAC. 
Nine of the twenty-five States without written policies did not provide 
information about their expectations of covered entities billing.  
However, according to four of these States, covered entities did not 
dispense 340B-purchased drugs to Medicaid patients at the time of our 
survey. 
States with and without written 340B policies requested more Federal 
guidance 
Eleven States reported that they want more Federal guidance on the 
intersection of Medicaid and the 340B Program.36  Of these States, 
5 have written policies and 6 do not. 
About half of the 11 States reported that CMS and HRSA guidance to 
States and covered entities on this topic is inconsistent and insufficient 
given the 340B Programs complexity.  For example, three States offered 
the following comments: 
 It would be very helpful if more information and clarification on 
340B rules and regulations by HRSA and CMS are shared with the 
States.  Direct communication to States regarding how to track and 
monitor 340B covered entities would be appreciated. 
 Intersections between 340B Program rules, pricing, AAC 
requirements, and Medicaid administration and payments are 
 complex, inconsistent, and nonaligned. 
 Neither [the 340B Program nor Medicaid] has enough guidance for 
the two to operate together. 
These comments describe some of the complexity and potential for 
confusion that arises from the intersection of Medicaid and the 340B 
Program. 
 
 
 
 
 
36 Forty States did not comment on this issue in response to open-ended questions on our 
survey. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  10   
   
F I N D I N G S  
States do not have necessary pricing information 
States do not have 340B 
to create prepay edits for 340B-purchased drugs;  ceiling prices or covered 
20 States conduct postpay reviews to identify  entities AAC for 
overpayments  340B-purchased drugs 
(together referred to as 340B 
drug prices).37  States do not have 340B ceiling prices because they 
are calculated using AMP, to which States historically have not had 
access.  Further, no States reported regularly collecting covered 
entities AAC, even though 41 States expect covered entities to bill at 
AAC.  The AAC varies by drug, quarter, and covered entity, so 
collecting it from covered entities regularly is difficult. 
States cannot create effective 340B-specific prepay edits without 340B 
drug prices.  In fact, 20 States reported that they need 340B drug prices to 
help them oversee their reimbursements for 340B-purchased drugs.38  
Without 340B drug prices, States are unable to tell when the amount 
billed exceeds established reimbursement policies, which typically are set 
at AAC.  Without prepay edits, States reimburse 340B-purchased drugs at 
the amounts that covered entities billwhich may be above 340B prices
even if States have a policy of reimbursing covered entities at 340B prices.  
While one State reported using a 340B-specific edit, the edit relies on 
historic data to estimate one type of covered entities acquisition costs for 
four drugs. 
Although almost no States have 340B-specific prepay edits, 48 have 
general prepay edits.  However, these edits are insufficient to prevent 
reimbursements above 340B prices.  General prepay edits apply to all 
Medicaid outpatient prescription drug claims and prevent payment above 
a calculated maximum allowable amount.  These edits are insufficient to 
prevent reimbursements above 340B prices for 340B claims because the 
maximum allowable cost typically is higher than the 340B price.  This 
means that it is possible for a State to pay more than the 340B price even 
when capping reimbursement at the maximum allowable cost for each 
drug. 
States that do not have written 340B policies may be particularly 
vulnerable to such overpayments.  Without written policies to reference, 
 
37 The 340B ceiling prices and AAC may differ if a covered entity purchases a drug at a 
price lower than the 340B ceiling price.   
38 Thirty-one States did not comment on this issue in response to open-ended questions 
on our survey. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  11   
   
F I N D I N G S  
covered entities may not know how States expect them to bill.  For 
example, a hospital industry group surveyed disproportionate share 
hospitals, a type of covered entity, in 27 States and found that many of 
the surveyed hospitals did not know what their States 340B policies 
were.39  If covered entities are not aware that a State expects them to 
bill at AAC for 340B-purchased drugs, they might bill above AAC and, 
in the absence of a 340B-specific prepay edit, a State would reimburse 
those covered entities above AAC. 
Twenty States conduct postpay reviews to identify overpayments for 
340B-purchased drugs 
Twenty States reported that they conduct postpay reviews of 
reimbursements for 340B-purchased drugs.  Fourteen States reported that 
they conduct audits, and eight reported that they conduct ongoing 
monitoring (two States do both).  Of the 20 States that conduct postpay 
reviews, 14 have written 340B policies. 
Of the 14 States that conducted audits, 8 reported finding overpayments 
for 340B-purchased drugs.  These 8 States audited 41 covered entities over 
a 10-year period and found approximately $2.6 million in overpayments.  
The 41 audited covered entities represent approximately 3 percent of the 
covered entities in the 8 States.  Generally, these States reviewed invoices 
to compare covered entities AAC to the States reimbursements.  States 
conducted these audits between October 1999 and June 2009. 
Most of the submitted audit documentation did not describe why 
overpayments occurred, although one State that audited hospital 
outpatient pharmacies found that the hospitals overbilled the State 
because of errors in hospital billing systems.  The hospitals reported to the 
State that their billing systems had not been updated in time to reflect 
quarterly changes to 340B drug prices. 
Eight States reported that they monitor reimbursements after claims for 
340B-purchased drugs are paid by conducting periodic checks of covered 
entities billing.  In some cases, States compare their estimates of AAC to 
covered entities billed amounts to identify potential overpayments.  For 
example, one State compares reimbursements for 340B-purchased drugs to 
73 percent of the amount it reimburses for drugs purchased outside the 
340B Program.  Estimating AAC could lead to imprecise identification of 
 
39 Safety Net Hospitals for Pharmaceutical Access, Shedding Light on Medicaid Billing 
Requirements:  A Survey of State Policies Addressing the Drug Billing Practices of 340B 
Hospitals, November 16, 2009.  Accessed at http://www.snhpa.org/ on November 20, 2009. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  12   
   
FF II NN DD II NN GG SS   
overpayments because 340B drug prices fluctuate each quarter and do not 
necessarily fluctuate in concert with other drug prices. 
 
Over half of States developed alternatives to the  Thirty States reported that they use 
Medicaid Exclusion File to identify 340B claims  alternatives to the Medicaid 
and prevent duplicate discounts  Exclusion File, a subset of HRSAs 
covered-entity database, to identify 
340B claims.  Ten of the thirty States reported that they developed 
alternatives because the file contains inaccurate data.  Previous OIG work 
found inaccuracies in other fields of HRSAs covered-entity database, such 
as enrollment status, and billing and shipping information.40 
States need accurate data to identify 340B claims so they do not subject 
drug manufacturers to duplicate discounts by including 340B claims in 
utilization data submitted for Medicaid rebates.  Alternatively, States may 
forgo rebates they are owed if non-340B claims are incorrectly excluded 
from utilization data submitted for Medicaid rebates. 
Of the 30 States that created alternatives to the Medicaid Exclusion File, 
26 contacted all or some covered entities directly and created their own 
lists of covered entities that dispense 340B-purchased drugs to Medicaid 
patients. 
On the other hand, 11 of the 30 States instructed covered entities to 
identify 340B claims.  These States instruct covered entities to identify 
340B claims in one of two ways.  Nine States instruct covered entities to 
identify 340B claims using the National Council for Prescription Drug 
Plan (NCPDP) Telecommunication Standard 5.1 when they submit a 340B 
claim.41  Two States instruct covered entities to bill 340B claims using an 
alternative billing identification number provided to covered entities that 
bill Medicaid for 340B-purchased drugs. 
Seven States use their own lists and instructions to covered entities to 
identify 340B claims. 
 
40 Previous OIG work found inaccuracies in HRSAs covered-entity database related to 
covered entities enrollment status and address, as well as billing and shipping information. 
Deficiencies in the 340B Drug Discount Programs Database (OEI-05-02-00071).  Accessed 
at http://oig.hhs.gov/ on May 13, 2010. 
41 The NCPDP Telecommunication Standard 5.1 is the electronic transaction standard 
that pharmacies and payers use to submit and exchange information about prescription 
drug claims.  The new version of the NCPDP Telecommunication Standard (version D.0) 
reserves a specific value, 08, to indicate a 340B claim.   
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  13   
   
F I N D I N G S  
Chart 2 shows States reported alternative methods to identify 340B 
claims. 
Chart 2:  States   
Methods To 
7
Identify 340B 
Claims  14
 
Medicaid Exclusion File only
Medicaid Exclusion File and one 
or more alternative methods
10
One or more alternative methods 
only
No method reported
20
  Source:  OIG analysis of survey data, 2010. 
Neither of the alternative methods employed by the 30 States necessarily 
ensures accurate identification of 340B claims.  States lists of covered 
entities that dispense 340B-purchased drugs to Medicaid patients may not 
be more accurate than the Medicaid Exclusion File.  Additionally, States 
that instruct covered entities to identify 340B claims must rely on covered 
entities to do so accurately and consistently. 
Fourteen States rely solely on the Medicaid Exclusion File to identify 340B 
claims, and seven States do not use any method to identify 340B claims 
Fourteen States reported that they use only the Medicaid Exclusion File to 
identify 340B claims.  As discussed previously, 10 States reported 
inaccuracies in the file and use alternative methods to identify 340B 
claims.  Inaccuracies in the file could mean that these 14 States may not 
accurately identify 340B claims.  When States do not accurately identify 
340B claims, they may subject drug manufacturers to duplicate discounts 
or not claim Medicaid rebates that they are owed. 
Seven States did not report a method of identifying 340B claims and may, 
as a result, submit utilization data to drug manufacturers that include 
340B claims, subjecting manufacturers to duplicate discounts.  Of these 
seven States, four reported that, at the time of the survey, no covered 
entities had submitted 340B claims.  One State reported that it was 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  14   
   
F I N D I N G S  
implementing a system of identifying 340B claims.  Two States did not 
report a reason for not identifying 340B claims. 
 
 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  15   
   
R E RC EO MC MO EM NM DE ANT DI AO TN IS O  N S  
RECOMMENDATIONS
 
Our findings raise concerns about States ability to conduct oversight 
activities related to 340B-purchased drugs.  Nearly half of States (25 of 
51) do not have 340B policies.  Fifteen of these States reported that they 
expect covered entities to bill 340B-purchased drugs at AAC based on 
the rescinded 1993 HRSA guidance.  Additionally, States do not have 
drug pricing information necessary to create prepay edits for 
340B-purchased drugs to prevent overpayments.  Finally, over half of 
States developed alternatives to the Medicaid Exclusion File to identify 
340B claims and prevent duplicate discounts.  Some of these States 
reported that they had to develop alternatives because of inaccurate 
data in the Medicaid Exclusion File. 
Based on these findings, we recommend that: 
CMS direct States to create written 340B policies 
CMS should direct States to create written 340B policies if they do not 
have them because current HRSA guidance directs covered entities to 
follow States 340B policies.  CMS should encourage States to make 
their written policies widely available to interested parties, including 
covered entities.  CMS should also alert States to any new HRSA-issued 
guidance about covered entities billing States for 340B-purchased 
drugs. 
CMS could also encourage States to consider the benefits and 
drawbacks of different 340B policies before setting their policies (e.g., 
consider how State expenditures might be affected if covered entities 
decide to dispense non-340B purchased drugs to Medicaid patients).  As 
part of this effort, States could work with covered entities to explore 
policy options that might result in savings for the States and the 
covered entities.  HRSAs Web site has information about covered 
entities and the 340B Program that States could consult in setting their 
policies. 
CMS inform States about tools they can use to identify claims for 
340B-purchased drugs 
CMS should inform States of the multiple ways to identify 340B claims.  
States can instruct covered entities to use the NCPDP 
Telecommunication Standard to identify claims for 340B-purchased 
drugs.  The new version of the NCPDP Telecommunication Standard 
(version D.0) reserves a specific value, 08, to indicate that a claim is for 
a 340B-purchased drug. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  16   
   
R E C O M M E N D A T I O N S  
CMS could also direct States to the Medicaid Exclusion File tutorial on 
HRSAs Web site.  HRSA developed the tutorial to help States and 
others understand how to use the file to identify covered entities 
dispensing 340B-purchased drugs to Medicaid patients. 
HRSA share 340B ceiling prices with States 
Providing 340B ceiling prices to States would help States create prepay 
edits to ensure that they accurately reimburse 340B-purchased drugs.  
Although the ACA gave HRSA authority to share 340B ceiling prices 
with covered entities, HRSA would have to seek legislative authority to 
share those prices with States.  Once given that authority, HRSA could 
use the mechanism that it establishes to share 340B ceiling prices with 
covered entities to share those prices with States as well. 
HRSA, in conjunction with CMS, improve the accuracy of the Medicaid 
Exclusion File 
HRSA should instruct covered entities to update their information in 
the Medicaid Exclusion File as part of the new annual database 
recertification required by the ACA. 
HRSA could also work with States to ensure that covered entities 
information in the Medicaid Exclusion File is correct.  HRSA could 
obtain updated information on covered entities from States that have 
verified all or part of the file for their State.  To assist HRSA, CMS 
could provide HRSA with contacts familiar with the covered entities in 
their respective States.  CMS could also instruct States to notify HRSA 
if they find discrepancies between their records and the Medicaid 
Exclusion File. 
AGENCIES COMMENTS AND OFFICE OF INSPECTOR 
GENERAL RESPONSE
 
CMS concurred with our recommendations.  To address them, CMS 
plans to (1) inform States that they should incorporate 340B policies 
into their Medicaid State Plans, (2) inform States of alternative 
methods of identifying 340B claims that we identified in this report, and 
(3) facilitate communication between HRSA and States by providing a 
list of State Medicaid pharmacy directors to HRSA and instructing 
States to contact HRSA when errors in the Medicaid Exclusion File are 
found. 
CMS requested further information regarding our statement in the first 
recommendation about States conducting cost-benefit analyses before 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  17   
   
R E C O M M E N D A T I O N S  
setting their policies.  In response, we revised the language in the 
recommendation. 
HRSA generally concurred with our recommendation that it share 340B 
ceiling prices with States.  HRSA agreed that such sharing may improve 
Medicaid reimbursement if States use the information to design 340B 
policies that result in savings for States and covered entities.  HRSA 
also emphasized that 340B policies should take into account the impact 
on covered entities and additional costs associated with the patient 
populations they serve.  HRSA did not, however, specify any action it 
would take to address this recommendation.  We continue to 
recommend that HRSA take steps to share 340B ceiling prices with 
States. 
HRSA also concurred with our recommendation to improve the accuracy 
of the Medicaid Exclusion File.  HRSA stated that its guidance from 
March 2000 requires covered entities to keep their information in the 
file up to date.  HRSA also encouraged States to share any discrepancies 
found between States records and the file, noting that such information 
sharing would improve oversight of the 340B Program and compliance 
with the prohibition of duplicate discounts.  However, HRSA did not 
indicate that it would take new action to instruct covered entities to 
update their information in the Medicaid Exclusion File.  We continue 
to recommend that HRSA include specific instruction to covered entities 
to update their information in the file as part of any new guidance it 
issues defining the new annual database recertification required by the 
ACA. 
HRSA provided technical comments on the report, which we 
incorporated where appropriate. 
For the full text of CMS and HRSA comments, see Appendix B. 
 
 
   
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  18   
   
 A P P E N D I X   ~   A  
Table A-1:  State Medicaid Agencies 340B Policies 
Written 
State  Location(s) of Written Policy 
Policy 
Alabama    State administrative code 
Alaska    State administrative code, pharmacy manual, official letter 
Arizona  -  - 
Arkansas    Official letter 
California    State law, pharmacy manual 
Colorado  -  - 
Connecticut    State law 
Delaware  -  - 
District of Columbia  -  - 
Florida    State law, state administrative code, pharmacy manual, official letter 
Georgia    Pharmacy manual 
Hawaii    State law, state administrative code 
Idaho  -  - 
Illinois    Pharmacy manual, written agreements 
Indiana  -  - 
Iowa    Pharmacy manual, official letter 
Kansas  -  - 
Kentucky    State administrative code, pharmacy manual 
Louisiana    State administrative code, pharmacy manual 
Maine  -  - 
Maryland  -  - 
Massachusetts    State administrative code 
Michigan    Pharmacy manual 
Minnesota    Written agreements 
Mississippi  -  - 
Missouri  -  - 
Montana    Official letter 
          continued on next page 
   
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  19   
A   P P E N  D I X   ~   A  
Table A-1:  State Medicaid agencies 340B Policies, Continued 
Written 
State  Location(s) of Written Policy 
Policy 
Nebraska  -  - 
Nevada  -  - 
New Hampshire  -  - 
New Jersey  -  - 
New Mexico  -  - 
New York    State law 
North Carolina    Pharmacy manual 
North Dakota  -  - 
Ohio  -  - 
Oklahoma    Official letter 
Oregon    Pharmacy manual 
Pennsylvania  -  - 
Rhode Island  -  - 
South Carolina  -  - 
South Dakota    State administrative code 
Tennessee    Written agreements 
Texas    State administrative code, pharmacy manual, written agreements 
Utah  -  - 
Vermont    Written agreements 
Virginia  -  - 
Washington    State administrative code, pharmacy manual 
West Virginia    Pharmacy manual, written agreements 
Wisconsin  -  - 
Wyoming  -  - 
Source:  Office of Inspector General analysis of survey data, 2010. 
 
 
 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  20  A  P  PEN  D  x  B 

Agency Comments 
CMS Comments 
Oenters for Medicare & Medicaid SelVices 
Administrator 
Washington, DC 20201 
filAR  231m
DATE: 
TO: 	 Daniel R. Levinson 
Inspector Oeneral 
FROM: 	 Donald M. Berwick, M.D. 
Administrator 
SUBJECT:  Office of Inspector General (010) Draft Report: State Medicaid Policies and 
Oversight Activities Related to 340B Purchased Drugs (OEI-05-09-00321) 
Thank you for the opportunity to review and comment on the 010 Draft Report entitled, "State 
Medicaid Policies and Oversight Activities Related to 340B Purchased Drugs," (OEI-05-09
00321). The purpose pfthis report wa~ to described State Medicaid agencies' policies and 
oversight activities related to drugs purchased under the 340B Drug Discount Program. 
The 340B Drug Discount Program requires drug manufacturers to provide covered outpatient 
drugs to certain eligible entities at or below a statutorily defined ceiling price. The 340B 
Program is administered through the Health Resources and Services Administration (HRSA). 
State Medicaid agencies may set specific policies for covered entities that dispense 340B drugs 
t6 Medicaid patients. 
The oro found that approximately half of States have written 340B policies that direct covered 
entities to bill Medicaid at cost for 340B-purchased drugs. Over half pf States without written 
policies reported that they rely on HRSA's 1993 guidance directing covered entities to bill States 
at actual acquisition cost (AAC) and expect covered entities to bill at AAC. The 010 also found 
that States do not have adequate infonnation to create prepay edits for 340B-purchased drugs due 
to logistical and legal issues.  However, twenty States conduct postpay reviews to identify 
overpayments for 340B-purchased drugs. Finally, the OIG found that States employ a variety of 
methods 10 identify 340B claims to prevent duplicate discounts. These methods include 
contacting covered entities directly and maintaining their own list, utilizing HRSA's Medicaid 
Exclusion File, instructing covered entities to use the National Council for Prescription Drug 
Plans (NCPDP) Telecommunications Standard, and instructing covered entities to bill Medicaid 
using an alternative billing identification nwnber. 
OIG .Recommendation 
CMS should direct States to establish written 340B policies if they do not already have policies 
in place. Further, CMS should alerl States to any new guidance HRSA issues about covered 
21 
OEI05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340BPURCHASED DRUGS   
   
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  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  22  x 
A  P  PEN  D  8 
HRSA Comments 
DEPARTMENT OF HEALTH &. HUMAN SERvrCES 
Health Resources and Services 
Administration 
Rockville MD 20857 
MAR  1 6 2011 
TO: 	 Inspector General 
FROM: 	 Administrator 
SUBJECT: 	 Office ofTnspector General Draft Report: "State Medicaid Policies and 

Oversight Activities Related to 340B-Purchased Drugs" 

(OEI-05-09-0032 J) 

This is in response to the Office ofInspector General's (OIG) request for comments on 
the draft report: "State Medicaid Policies and Oversight Activities Related to 340B
Purchased Dmgs" (OEI-05-09-00321). Attached are the Health Resources and Services 
Administration's comments on this draft report. Under separate cover, technical 
comments are also being sent to OIG.  If you have any questions, please contact Sherry 
Angwafo in HRSA's Office of Federal Assistance Management at (301) 443.9547. 
Mary K. Wakefield, Ph.D., R.N. 
Attachment 
OEI050900321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340BPURCHASED DRUGS  23   
   
A P P E N D I X   ~   B  
 
 
   
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A P P E N D I X   ~   B  
 
 
 
 
   
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  25   
   
 A C K N O W L E D G M E N T S  
 
This report was prepared under the direction of Ann Maxwell, Regional 
Inspector General for Evaluation and Inspections in the Chicago 
regional office, and Thomas F. Komaniecki, Deputy Regional Inspector 
General. 
Kelly Waldhoff served as the team leader for this study.  Other principal 
Office of Evaluation and Inspections staff from the Chicago regional 
office who contributed to the report include Adam Freeman, Abby 
Lopez, and Carolyn Pichert; other central office staff who contributed 
include Heather Barton. 
  OEI-05-09-00321  STATE MEDICAID POLICIES AND OVERSIGHT ACTIVITIES RELATED TO 340B-PURCHASED DRUGS  26   
Office of Inspector General 
http://oig.hhs.gov 
 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, as 
amended, is to protect the integrity of the Department of Health & Human Services (HHS) 
programs, as well as the health and welfare of beneficiaries served by those programs.  This 
statutory mission is carried out through a nationwide network of audits, investigations, and 
inspections conducted by the following operating components: 
Office of Audit Services 
The Office of Audit Services (OAS) provides auditing services for HHS, either by conducting 
audits with its own audit resources or by overseeing audit work done by others.  Audits 
examine the performance of HHS programs and/or its grantees and contractors in carrying 
out their respective responsibilities and are intended to provide independent assessments of 
HHS programs and operations.  These assessments help reduce waste, abuse, and 
mismanagement and promote economy and efficiency throughout HHS. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) conducts national evaluations to provide 
HHS, Congress, and the public with timely, useful, and reliable information on significant 
issues.  These evaluations focus on preventing fraud, waste, or abuse and promoting 
economy, efficiency, and effectiveness of departmental programs.  To promote impact, OEI 
reports also present practical recommendations for improving program operations.  
Office of Investigations 
The Office of Investigations (OI) conducts criminal, civil, and administrative investigations 
of fraud and misconduct related to HHS programs, operations, and beneficiaries.  With 
investigators working in all 50 States and the District of Columbia, OI utilizes its resources 
by actively coordinating with the Department of Justice and other Federal, State, and local 
law enforcement authorities.  The investigative efforts of OI often lead to criminal 
convictions, administrative sanctions, and/or civil monetary penalties. 
Office of Counsel to the Inspector General 
The Office of Counsel to the Inspector General (OCIG) provides general legal services to 
OIG, rendering advice and opinions on HHS programs and operations and providing all 
legal support for OIGs internal operations.  OCIG represents OIG in all civil and 
administrative fraud and abuse cases involving HHS programs, including False Claims Act, 
program exclusion, and civil monetary penalty cases.  In connection with these cases, OCIG 
also negotiates and monitors corporate integrity agreements.  OCIG renders advisory 
opinions, issues compliance program guidance, publishes fraud alerts, and provides other 
guidance to the health care industry concerning the anti-kickback statute and other OIG 
enforcement authorities.