CMS will notify state Medicaid programs within the next 30 days clarifying that states may exempt hospitals from a federal mandate to collect national drug codes (NDCs) on physician-administered drugs if such drugs are billed at their “purchasing cost” as defined under a state’s Medicaid plan.  The CMS transmittal will also advise the states that if a hospital drug qualifies for the exemption, it is not subject to a rebate under the Medicaid drug rebate program.

The CMS action follows settlement of August 2008 litigation filed against the federal agency by the Safety Net Hospitals for Pharmaceutical Access (SNHPA), representing about 500 safety-net hospitals, and the University Medical Center of Southern Nevada (UMCSN) in Las Vegas.  That lawsuit attempted to reverse the implementation of the July 2007 CMS Medicaid regulation mandating the NDC reporting by hospitals.  The hospitals said the reporting requirement would cost them millions of dollars and would be very difficult to implement, and sought a permanent injunction prohibiting the federal government from requiring and encouraging state Medicaid agencies to collect the information.  

In their original complaint, the plaintiffs contended CMS had ignored or misinterpreted an existing Medicaid law that exempted drugs dispensed by hospitals from rebates when the hospitals billed for those drugs at their purchasing costs. The American Society of Health-System Pharmacists, which represents 35,000 pharmacists from hospitals and other health care facilities, had estimated the reporting requirement was going to require hospital systems to make changes that would add costs of $10 per prescription.

The drugs for which CMS was demanding NDCs included infusion products and injectables, which are liquid products or compounds of different drugs that do not lend themselves easily to the mandated reporting. 

SNHPA President and General Counsel William von Oehsen called news of the CMS transmittal “an important step by federal authorities in recognizing and publicizing states’ pre-existing right to exclude hospital drugs from Medicaid rebate requirements, including NDC reporting, without risking the loss of federal matching funds.”  Mr. von Oehsen urged states to take advantage of the CMS clarification to eliminate a difficult and costly administrative burden on all hospitals, especially those participating in the 340B drug discount program by virtue of serving large numbers of uninsured and underinsured patients.