DEPARTMENT OF HEALTH & HUMAN SERVICES 
Centers for Medicare & Medicaid Services 
7500 Security Boulevard, Mail Stop S2-26-12 
Baltimore, Maryland   21244-1850 
CMCS Informational Bulletin 
DATE:  January 8, 2020
FROM:  Calder Lynch, Acting Deputy Administrator and Director 
Center for Medicaid and CHIP Services 
SUBJECT:  Best Practices for Avoiding 340B Duplicate Discounts in Medicaid  
The purpose of this Informational Bulletin is to outline a number of best practices that states are 
encouraged to consider to avoid billing manufacturers for Medicaid rebates (also known as 
receiving a duplicate discount) for covered outpatient drugs purchased under the 340B Drug 
Pricing Program (340B Program).  This guidance was also developed in response to two OIG 
reports which encouraged CMS to inform states about ways they could identify claims for 340B 
drugs to, in part, avoid duplicate discounts and enhance state compliance in this program.1 2  
State Medicaid agencies (states) are prohibited from billing manufacturers for Medicaid rebates 
for drugs dispensed to Medicaid patients that have already been discounted under the 340B 
Program.  Stakeholders, including states, have indicated that avoiding duplicate discount billing 
has become more complex due to the increase in the number of Medicaid managed care 
beneficiaries as well as the number of prescriptions filled at 340B-entity contract pharmacies. 
The Centers for Medicare & Medicaid Services (CMS) and the Health Resources & Services 
Administration (HRSA) continue to discuss concerns and potential solutions raised by 
stakeholders to avoid duplicate discount billing.  This bulletin highlights several best practices 
for states to presently consider to avoid billing manufacturers for rebates for covered outpatient 
drugs purchased under the 340B Program.   
Background 
Section 340B(a)(5)(A) (the PHS Act) prohibits duplicate discounts; that is, manufacturers are not 
required to both provide a 340B price and pay the state a rebate under the Medicaid drug rebate 
program for the same drug.  To help achieve this end, HRSA established the Medicaid Exclusion 
File (MEF) for Medicaid fee-for-service (FFS) claims as the mechanism to assist 340B covered 
entities, states and manufacturers in avoiding duplicate discounts.3  The establishment of this 
MEF by HRSA satisfied the requirement  at section 1927(a)(5)(C) of the Social Security Act to 
establish an alternative mechanism to ensure against duplicate discounts or rebates, if one was 
not established as required under that provision. 
1 https://oig.hhs.gov/oei/reports/oei-05-09-00321.pdf 
2 https://oig.hhs.gov/oei/reports/oei-05-14-00430.asp 
3 https://340bopais.hrsa.gov/medicaidexclusionfiles   CMCS Informational Bulletin  Page 2 
 
Two recent CMS rules included requirements relating to streamlining the interaction between 
Medicaid and the 340B Program with the goal of reducing duplicate discounts.  On February 1, 
2016, CMS published the Covered Outpatient Drugs final rule with comment period (CMS-
2345-FC) (Final Rule) in the Federal Register.  This Final Rule discussed that states are not 
responsible for submitting claims to manufacturers for rebates for drugs acquired under the 340B 
program.  
On May 6, 2016, CMS published the Medicaid and CHIP Managed Care final rule (CMS-2390-
F) (MC Final Rule), which included the state contracting requirements for Medicaid managed 
care organizations (MCOs), prepaid inpatient health plans, and prepaid ambulatory health plans 
(collectively referred to as Medicaid managed care plans) that provide covered outpatient drugs.  
That MC Final Rule established a requirement that states include a provision in all managed care 
plan contracts requiring that the managed care plans have procedures in place to exclude 
utilization associated with 340B drugs when states do not require submission of managed care 
drug claims data from covered entities directly, so that manufacturers will not be billed 
erroneously for rebates on 340B purchased drugs dispensed to Medicaid beneficiaries.  See 42 
CFR 438.3(s)(3).   
The following sections outline best practices that state Medicaid programs may consider if facing 
challenges with avoiding billing for duplicate discounts. 
Using the 340B Medicaid Exclusion File (MEF) 
When covered entities enroll with HRSA to participate in the 340B Program, they must 
determine whether they will use 340B drugs for their Medicaid FFS patients (carve-in) or 
whether they will purchase drugs for these beneficiaries through other mechanisms (carve-
out).  Covered entities are required to inform HRSA at the time they enroll in the 340B Program 
if they will purchase and dispense 340B drugs for their carve-in beneficiaries by providing 
their National Provider Identification (NPI) numbers and/or Medicaid billing number.4 
Section 340B(a)(5)(A)(ii) of the PHS Act requires the Secretary of the Department of Health and 
Human Services (HHS) to establish a mechanism to ensure covered entities comply with the 
prohibition against billing for duplicate discounts.  HRSA and CMS collaborated to establish the 
340B Program MEF, which serves as the official data source to determine whether covered 
entities have opted to bill 340B drugs under Medicaid FFS.  The MEF contains a listing of those 
covered entities that have opted to use drugs purchased through the 340B Program for carve-in 
beneficiaries, and have agreed to bill Medicaid accordingly, along with their corresponding NPI 
numbers and/or Medicaid Provider Numbers.   
By referring to the MEF, states can more easily exclude Medicaid FFS drug claims from these 
covered entities when submitting Medicaid rebate requests to manufacturers.  States are 
encouraged to use the MEF to help prevent duplicate discounts in Medicaid FFS.  However, it is 
                                                           
4https://www.hrsa.gov/sites/default/files/opa/programrequirements/policyreleases/medicaidexclusionclarification020
713.pdf  
 
 
  CMCS Informational Bulletin  Page 3 
 
important to note that the MEF does not apply to 340B covered entities arrangements with 
Medicaid managed care plans at this time.  HRSA issued Policy Release 2014-1 to clarify that 
the use of the MEF should be limited to Medicaid FFS and associated compliance requirements.5  
CMS defers to HRSA for any questions related the MEF.  
Developing Strategies with Contract Pharmacies 
CMS is also aware that some states face challenges with avoiding duplicate discounts on 340B 
drugs dispensed by 340B contract pharmacies.  Contract pharmacies may be unable to 
prospectively identify claims for 340B purchased drugs before billing states, because the 
prescriptions are not generally identified as 340B at the point of sale by the 340B covered entity.  
Collectively, states are responsible for retrospectively identifying claims, which is time 
consuming, often requires employing the services of contractors, and can be rather complex 
given the involvement of the number of contract pharmacies.  
In 2010, HRSA issued recommended guidelines for covered entities that utilize contract 
pharmacies to dispense 340B purchased drugs to Medicaid FFS beneficiaries.6  The guidance 
states that HRSA may not permit covered entities to dispense 340B drugs to Medicaid FFS 
beneficiaries through a contract pharmacy unless the covered entity has an approved contract 
pharmacy agreement to prevent duplicate discounts.  The guidelines set forth that the 340B 
covered entity, the contract pharmacy and state Medicaid agency have established a three-party 
arrangement to prevent duplicate discounts.  Such arrangements are to be reported to HRSAs 
Office of Pharmacy Affairs (OPA) by the covered entity.7  A list of covered entities with 
approval from HRSA to dispense 340B drugs at their contract pharmacies to Medicaid FFS 
patients can be found at http://340bopais.hrsa.gov/reports. 
 
Options for Medicaid Reimbursement for 340B Drugs Purchased by Covered Entities 
To help assist with avoiding duplicate discounts, some state Medicaid programs have elected to 
use the state plan amendment (SPA) process to develop parameters around the ability of covered 
entities and/or contract pharmacies to dispense 340B drugs to Medicaid FFS beneficiaries.  For 
example, a state can ask a covered entity to confirm in writing that it is using 340B purchased 
drugs for Medicaid patients.  This can help states confirm the information that a covered entity is 
reporting to the Medicaid Exclusion File for FFS claims.  A state could also use the SPA process 
to limit the ability of some or all of the covered entities and/or contract pharmacies in the state to 
use 340B purchased drugs for Medicaid beneficiaries.  If the covered entity or contract pharmacy 
is not able to use 340B drugs for Medicaid beneficiaries, the pharmacy can remain a Medicaid 
provider and drugs can be purchased outside of the 340B program and dispensed to Medicaid 
patients.  States should evaluate the individual needs of their program to determine if these 
approaches will provide the best quality of care to patients and assist in avoiding billing 
manufacturers for duplicate discounts. 
                                                           
5 https://www.hrsa.gov/sites/default/files/opa/programrequirements/policyreleases/clarification-medicaid-
exclusion.pdf 
6 Notice Regarding 340B Drug Pricing ProgramContract Pharmacy Services; Final Notice.  75 Fed. Reg., 10278 
(Mar. 5, 2010).  https://www.gpo.gov/fdsys/pkg/FR-2010-03-05/pdf/2010-4755.pdf 
7 Id 
 
 
  CMCS Informational Bulletin  Page 4 
 
Using 340B Claims Identifier Options 
Submission Clarification Code 
The National Council for Prescription Drug Programs (NCPDP) has issued a claims modifier 
option as part of the NCPDP Telecommunication Standard version D.0.8  This option allows a 
pharmacy to designate a 340B claim ineligible for a rebate prior to dispensing.  
 
State Medicaid agencies choosing to use this NCPDP claims modifying mechanism can require 
pharmacies to submit a value of 20 in the Submission Clarification Code field of the NCPDP 
Telecommunication Standard and a value of 08 in the Basis of Cost Determination field to 
identify 340B claims.  The Submission Clarification Code is issued to describe the claim and the 
Basis of Cost Determination describes the price.  The Submission Clarification code has had 
very limited use, however, and NCPDP has indicated that in the future it plans to sunset the 
value in Telecommunication VF2 and greater versions.  In the meantime, the Submission 
Clarification Code can be submitted on the point of service real time claim or added 
retrospectively to indicate that a drug within the pharmacys physical inventory was purchased 
under the 340B Program. 
UD Modifier or State-Specific Modifiers 
The American National Standards Institutes (ANSI) Accredited Standards Committee (ASC) 
standard X12 837P UD modifier can be used to identify physician administered drugs 
purchased through the 340B Program.  For physician administered drugs purchased through the 
340B Program, states can instruct 340B covered entities to enter the ANSI UD modifier on the 
claim, and other appropriate claim forms (CMS 1500 837 or UB04 837), associated with the 
applicable Healthcare Common Procedure Coding System (HCPCS) code and national drug code 
(NDC) to properly identify 340B drugs. 
Physician Administered Drugs Billing Modifiers for Dually Eligible Beneficiaries 
Effective January 1, 2018, Medicare Part B has implemented two new 340B billing modifiers for 
use under the Hospital Outpatient Prospective Payment System (OPPS).  These modifiers are 
required by the Medicare billing system to identify certain Part B drugs acquired under the 340B 
Program. Medicare has assigned modifier JG to relate to specific Medicare drug 
reimbursement, whereas Medicare is using the TB modifier for informational purposes.   
More details on these modifiers can be found in online FAQs 
here: https://www.cms.gov/Medicare/Medicare-Fee-for-Service-
Payment/HospitalOutpatientPPS/Downloads/Billing-340B-Modifiers-under-Hospital-OPPS.pdf. 
If the state receives a crossover drug claim containing either modifier for dual-eligible 
beneficiaries, the state should recognize that the drug was purchased under the 340B Program 
and not bill the manufacturer for a rebate.  States that have dual-eligible beneficiaries enrolled in 
Medicaid managed care plans should instruct the Medicaid managed care plans to be aware of 
                                                           
8 https://www.ncpdp.org/Resources/Standards-Transition.aspx 
 
 
  CMCS Informational Bulletin  Page 5 
 
these two new modifiers when the plan is complying with the contract term that implements 42 
C.F.R.  438.3(s)(3).  Even without such a direction from the state, Medicaid managed care plans 
that must comply with a contract term implementing  438.3(s)(3) should take these two new 
modifiers into account as part of its procedures to exclude utilization data for covered outpatient 
drugs that are subject to discounts under the 340B Program from the utilization reports that must 
be submitted to the state. 
State Medicaid agencies may also wish to instruct their providers to include the TB modifier, 
along with the required NDC number, on all physician administered drug claims for drugs 
purchased under the 340B program.  This will fulfill the states requirement to provide a means 
for covered entities to identify 340B purchased drugs in order to prevent erroneously billing 
manufacturers for rebates and creating a duplicate discount.  
Finally, states implementing this option should then exclude from Medicaid rebate billing all 
claims identified with either of these 340B claims identifiers, or any other state-specific 340B 
claim identifiers adopted for both (or either) FFS and managed care claims for covered outpatient 
drugs.  By excluding claims that have been identified as drugs that were purchased using 340B 
discounts, states will avoid duplicate discounts on such claims. 
Including 340B Duplicate Discount Provisions in Medicaid Managed Care Contracts 
Additional steps must also be taken to safeguard against duplicate discounts on 340B claims 
when Medicaid managed care plans are responsible for payment of the covered outpatient drug.   
Consistent with the contract provision required by 42 CFR 438.3(s)(3), claims for 340B drugs 
that are the responsibility of the Medicaid managed care plan must be identified and excluded 
from the general managed care utilization data reported to the state for purposes of billing 
manufacturers for Medicaid rebates.  This is the case when states do not require submission of 
managed care drug claims data from covered entities directly.   
As specified in the MC Final Rule, states must include the requirements from 42 CFR 
438.3(s)(3) in their managed care plan contracts; that provision requires the managed care plan 
to exclude utilization data for covered outpatient drugs that are subject to discounts under the 
340B drug pricing program from the reports that managed care plans submit to the state when 
states do not require submission of managed care drug claims data from 340B covered entities 
directly.  To help ensure that these requirements are met, states should also exclude these 340B 
claims in their drug utilization data reported to CMS quarterly for purposes of the Medicaid drug 
rebate program. 
HRSA encourages 340B covered entities to work with the applicable state to develop strategies 
to prevent duplicate discounts on drugs covered by Medicaid managed care plans.  HRSA has 
outlined best practices for covered entities in Policy Release 2014-1.9 
 
                                                           
9 https://www.hrsa.gov/sites/default/files/opa/programrequirements/policyreleases/clarification-medicaid-
exclusion.pdf 
 
 
  CMCS Informational Bulletin  Page 6 
 
Providing Claims Level Data to Manufacturers 
Although there is not a requirement for states to do so, states may consider providing 
manufacturers with claims level data, along with drug rebate invoices, to facilitate compliance 
and to ensure there are no duplicate discounts.  Generally, when states provide claims level data 
to manufacturers, we would expect there to be a reduction in number of disputes due to more 
accurate information being provided.  As a reminder to states, the quarterly manufacturer 
Medicaid drug rebate invoices are summarized at the NDC11 level and sent to manufacturers 
without the underlying claims level data.  However, manufactures likely need claims level data 
for true invoice validation purposes.  
 
340B duplicate discounts can often best be identified from a review of claims level data by the 
manufacturers.  Some states have chosen to provide their claims level data via a secured web 
portal managed by the states invoicing vendor and/or an independent third-party data company.   
If claims level data is provided, this may reduce the states administrative burden and expense of 
researching manufacturer dispute issues.  
Using Specific Medicaid BIN/PCN on Medicaid Managed Care Plan Identification Cards 
340B covered entities bill states for 340B prescriptions dispensed to Medicaid FFS beneficiaries 
through electronic claims, and use two codes to identify the beneficiarys health insurance and 
benefits - NCPDP Processing Bank Identification Number (BIN) and Processor Control Number 
(PCN).  However, for 340B drugs dispensed to Medicaid managed care patients, many managed 
care plans have multiple lines of business that include Medicaid, commercial insurance, 
Medicare Advantage, and Marketplace coverage.  In the absence of BIN and PCN identifiers 
unique to Medicaid managed care plans, it is difficult for the covered entities to determine 
whether the patient is a Medicaid managed care beneficiary or covered under another one of the 
managed care plans other (non-Medicaid) lines of business, since a Group Number alone is not 
sufficient for Medicaid identification.   
A best practice identified by states and stakeholders is for each Medicaid managed care plan and 
its pharmacy benefit managers (PBM(s)) to use a BIN/PCN combination that is unique to its 
Medicaid business (i.e., for claims for drugs dispensed to Medicaid beneficiaries), and thus 
distinguishable from the BIN/PCN combinations used for its other lines of business.  In their 
contracts with Medicaid managed care plans, several states now require their plans to use 
specific BIN/PCN numbers to readily identify a Medicaid beneficiary.  This provides an 
additional tool in the prevention of duplicate discounts.  Specifically, covered entities that have 
opted to carve-out will know at the point of service whether to provide beneficiaries with 
medications purchased through the 340B Program.  
The BIN/PCN unique identifier may also be valuable for the prevention of duplicate discounts 
where contract pharmacy arrangements exist.  However, contract pharmacies must also be sure 
that the beneficiary presenting these Medicaid-specific cards at pharmacies that carve-in to 340B 
(i.e., contract pharmacies that have opted to use drugs purchased through the 340B Program for 
Medicaid beneficiaries) meets other applicable 340B patient eligibility tests, such as ascertaining 
that the Medicaid beneficiary received care at a 340B covered entity.  HRSAs patient definition 
 
 
  CMCS Informational Bulletin  Page 7 
 
guidelines can be found at 
https://www.hrsa.gov/sites/default/files/opa/programrequirements/federalregisternotices/patienta
ndentityeligibility102496.pdf.  Thus, the fact that a beneficiary has a Medicaid-specific 
BIN/PCN does not automatically mean they should receive a 340B drug.  
Summary 
CMS understands that preventing billing for duplicate discounts in the 340B Program can 
present challenges to state Medicaid programs, but there are potential best practices that can be 
employed requiring commitment from all stakeholders involved.  In working to share and 
implement these best practices for avoiding duplicate discounts, CMS remains committed to 
providing access to all Medicaid beneficiaries and recognizes the important role that the 340B 
Program plays towards that goal.  
If you have any questions regarding CMS guidance on 340B Best Practices, please email your 
questions to RxDRUGPolicy@cms.hhs.gov.