PCDC Comments on New York’s 1115 Waiver Extension Request

Categories: Policy
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PCDC recently submitted comments in response to New York State’s Medicaid 1115 waiver extension request, urging the state to remove the proposal to transition the Medicaid pharmacy benefit from Managed Care to Fee-for-Service (FFS) from the request in its entirety.

The pharmacy transition, also referred to as the “carve-out”, would eliminate critical savings safety net providers receive through the federal 340B drug pricing program.

“We are deeply concerned the proposed 340B pharmacy carve-out included in the waiver extension request will permanently damage the delivery of safety net care in New York, reduce access to affordable medicine, destabilize health center financing, and further harm communities already struggling with COVID-19’s health care and economic crisis,” PCDC stressed in the comments.

PCDC emphasized their perspective as a community development financial institution (CDFI), stating that elimination of 340B savings would destabilize health center financing, which would have devastating downstream consequences for the health of our most vulnerable communities.

The full comment is available below.

Primary Care Development Corporation (PCDC) Comment on
New York State Medicaid Redesign Team (MRT) 1115 Research and Demonstration Waiver
#11-W-00114/2 Extension Request

January 15, 2021

Thank you for the opportunity to comment on New York’s request to the Centers for Medicare and Medicaid Services (CMS) for a three (3) year Medicaid 1115 waiver extension (“the waiver”). Primary Care Development Corporation (PCDC) is a New York-headquartered, national nonprofit community development financial institution (CDFI) dedicated to building equity and excellence in primary care by strengthening the primary care infrastructure. We are deeply concerned the proposed 340B pharmacy carve-out included in the waiver extension request will permanently damage the delivery of safety net care in New York, reduce access to affordable medicine, destabilize health center financing, and further harm communities already struggling with COVID-19’s health care and economic crisis.

The stated purpose of the State’s extension request is to maintain existing programs and related waiver expenditure authorities with minor modifications. One such modification pertains to the Medicaid delivery system: the pharmacy benefit carve-out from managed care to fee-for-service (FFS). The stated goals and objectives of this waiver extension are to “improve access to health care for the Medicaid population” and to “improve the quality of health services delivered.” While PCDC supports these objectives, the proposal to transition the pharmacy benefit into FFS is in direct opposition of those efforts. The pharmacy carve-out proposal must be removed from the waiver extension request in its entirety.

Carve-out Will Jeopardize Community Health and Economies

Since Congress enacted the 340B program in 1992, safety net providers have counted on 340B revenue to reduce drug costs and help offset the high expense of delivering comprehensive care services to the medically underserved. Much of the care being delivered at these entities is unreimbursed due to the high proportion of medically needy patients who are underinsured or uninsured. The 340B program allows providers to fund the care and ancillary services that ultimately keep a community healthy rather than just triaging those with immediate need. It also allows providers to give low or no-cost prescriptions to the un- or under-insured.

The purpose of 340B is explicit in the original report establishing the program: “to stretch scarce federal resources as far as possible, reaching more eligible patients, and providing more comprehensive services.” Congress specifically enumerated and identified entities qualifying for 340B as those serving low-income and disabled patients – these same entities have worked tirelessly throughout the COVID-19 pandemic to ensure the most vulnerable New Yorkers receive the vital care services they need. The creation of the 340B program itself was a recognition that reimbursement alone is insufficient to create true sustainability for the primary care sector to provide comprehensive, coordinated, accessible care for the most vulnerable populations. Many safety net providers have come to rely on 340B to help offset the high unreimbursed costs of delivering comprehensive care services to the medically underserved. The 340B program has acted as a tool to fill that revenue gap for decades, but the pharmacy carve-out proposal in this waiver extension request effectively eliminates these essential funds.

From our experience expanding and enhancing quality primary care in low-income communities, we have an intimate knowledge of how health centers and safety net providers rely on the 340B discount pharmacy program to invest in access to care for hard to reach and underserved patients. Because 340B covered entities inherently see the most vulnerable populations, reductions in the program’s savings are detrimental to the physical, mental, and economic health of the communities they serve. Reduction in the ability of the health care safety net to provide services will lead to worsened health outcomes and could cause additional damage to local economies.  Health centers and other health care facilities are anchor community institutions that provide comprehensive care and maintain the health of communities, thereby both creating employment opportunities, and supporting worker health and productivity.

Elimination of 340B Savings Destabilizes Health Center Financing

Since our founding in 1993, PCDC has worked with over 3200 health care sites in the Empire State to increase and improve the delivery of primary care and other vital health services for millions of New Yorkers. In New York, our legacy includes the financing of key regional health providers such as Hometown Health Centers (Schenectady), HRHCare Community Health (Poughkeepsie and Monticello), Community Health Center of Buffalo (Buffalo), Hudson Headwaters (Fort Edward), and Callen-Lorde (New York City). In just the last five years, PCDC arranged nearly $126 million in affordable and flexible financing to expand access to primary care statewide.

 As a lender to many 340B entities across New York, PCDC is aware that 340B savings are, in many cases, a critical financial lifeline for safety net providers. PCDC understands how lenders assess risk and make decisions on where to invest capital. Even before the COVID-19 pandemic and resulting financial hardships, access to capital was limited for health centers and other safety net providers. We know that lenders rely on the financial stability of an organization and the reliability of its funding. The uncertainty imposed on the market by recent regulatory changes to 340B at the federal level are compounded by state proposals like the carve-out, in addition to the impact of COVID-19 and the resulting economic crisis, increasing perceived and real risks associated with financing health centers and other safety net providers. This consequently may jeopardize health centers’ and other entity’s financial stability as well as their access to capital. This outcome is damaging for these providers at a time when revenues have already decreased drastically due to the pandemic’s effects.

The savings providers receive through the 340B program have served as a stable component of providers’ comprehensive revenues that lenders have historically relied upon when evaluating an organization’s financial sustainability and their ability to manage debt. This financial sustainability enables CDFIs like PCDC to offer more affordable interest rates and terms, attracting additional private investment from traditional financing institutions – ultimately reducing costs for the provider in the long term and opening financing avenues for future expansions and improvements.

Over the next months and years, safety net facilities will need even greater access to capital to fund COVID-19 related expenses to recruit and train furloughed staff in new delivery methods, redesign patient flow and facilities to accommodate new protocols for onsite care, invest in technology to support telehealth, implement a “bimodal” (physical onsite/virtual) primary care delivery platform, purchase personal protective equipment (PPE), and fund ancillary operating costs associated with patient service delivery. Reducing 340B revenue will prove corrosive, undermining the sector’s stability, provoking partners and investors to reduce capital investment, and eroding the health center landscape when it is needed most.

Proposed Fixes Will Not Protect Community Health

The proposal to allow physician-administered drugs to remain “carved in” to the managed care pharmacy benefit is reasonable but will predominately benefit safety net hospitals leaves out community health centers and others.  Health centers are critical care access points during the COVID-19 pandemic. Low-income communities of color will inevitably be impacted the most – these historically disinvested communities already face disproportionately high rates of chronic disease and low access to primary care. We have seen that the effects of COVID-19 have disproportionately impacted Black and brown New Yorkers. Eliminating 340B savings by carving out the pharmacy benefit will further distress these communities.

In recognition of “the importance of the 340B program to safety net providers [and] the need to address revenue reductions,” the State has committed to the reinvestment of $102 million in the first year for 340B covered entities, pending federal approval. However, this reinvestment falls far short of the fiscal impact the carve-out will have on all covered entities across the state. Some estimates state as much as $250 million in revenue will be lost across all of the safety net providers in New York State that participate in the 340B program in Medicaid Managed Care. The Community Health Center Association of New York (CHCANYS) projects at least $100 million in losses annually for community health centers alone as a result of this transition.

Under federal statute, covered entities include six categories of safety net hospitals as well as ten categories of non-hospital covered entities, including but not limited to FQHCs, FQHC look-alikes, AIDS service organizations, Title X family planning clinics, and Urban Indian or Native Hawaiian health centers. Attempting to spread $102M across the many organizations that will need supplemental funds will prove fruitless. At a time when the State’s most vulnerable populations are suffering disproportionately as a result of the pandemic and economic crisis, these communities cannot afford to lose the vital services that health centers and other safety net practices provide. In addition, downsizing or shuttering community health centers and critical access hospitals can have significant negative effects on an area’s fiscal health.

With the overall State goal of controlling costs given the fiscal crisis, looking for savings in the Medicaid program is understandable.  However, the impact of the pharmacy benefit transition on covered entities and the communities they serve will be catastrophic and of minimal consequence to the program’s overall financing.  We urge the State to consider the detrimental effects of the carve-out on the health and stability of New York’s most vulnerable communities and remove the proposal from the waiver extension request entirely.


Patrick Kwan, Senior Director of Advocacy and Communications
Primary Care Development Corporation | (212) 437-3927 | pkwan@pcdc.org