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CMS Provides Guidance on Medicaid Outpatient Drug Rule

In a letter to state Medicaid directors earlier this month, the Centers for Medicare & Medicaid Services (CMS) offered guidance on regulations for reimbursement of covered outpatient drugs in the Medicaid program.

The regulations finalize key policies that states must address when determining their reimbursement methodologies, including these:

  • revision of 42 CFR §447.512(b) to require states to reimburse at an aggregate upper limit based on actual acquisition cost (AAC) plus a professional dispensing fee established by the agency
  • implementation of the Affordable Care Act federal upper limit
  • requirements for Indian Health Service, tribal, and Urban Indian Organization pharmacies

Of particular importance to members of America’s Essential Hospitals is that CMS’ final rule and implementation of its requirements as described in the letter could significantly reduce current Medicaid payments for 340B-covered outpatient drugs in some states. The final rule requires that a state’s payment methodology for drugs dispensed by 340B-covered entities and/or contract pharmacies must be in accordance with the definition of AAC, defined as the agency’s determination of the pharmacy providers’ actual prices paid to acquire drugs sold by specific manufacturers. According to the letter, “for drugs purchased through the 340B program, reimbursement should not exceed the 340B ceiling price.”

At the same time, CMS requires states to pay dispensing fees that reflect the pharmacist’s services and costs to dispense a drug to a beneficiary. CMS also acknowledges that states have flexibility to establish higher professional dispensing fees for 340B providers.

States will be required to submit their 340B reimbursement methodology and professional dispensing fee proposal to CMS through the State Plan Amendment process if it is not already comprehensively described in the state plan.

Contact Director of Policy Erin O’Malley at or 202.585.0127 with questions.


About the Author

Gontscharow is a senior policy analyst for America's Essential Hospitals.

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