State Efforts to Exclude 340B Drugs from Medicaid Managed Care Rebates

Manufacturer rebates for drugs paid through Medicaid managed care organizations (MCOs) are an increasingly important source of savings for both States and the Federal government. However, "duplicate discounts," which occur when manufacturers pay Medicaid rebates on drugs sold at the already discounted 340B price, are prohibited by law. Thus, for States to collect allowable rebates only and avoid duplicate discounts for drugs paid through MCOs, they must identify and exclude 340B drug claims. If a State does not accurately identify 340B drug claims, both duplicate discounts and forgone rebates-that is, unclaimed rebates to which States are legally entitled-may occur. Duplicate discounts result in manufacturers paying too much in rebates, while forgone rebates result in States paying too much for drugs.