After the Supreme Court ruled reimbursement cuts to 340B hospitals were done unlawfully, CMS is proposing to repay hospitals and providers in the program with a lump sum that has repercussions for other hospitals because of the agency’s need to be budget neutral.
CMS is proposing a lump sum payment of approximately $9 billion to 340B hospitals who received unlawfully reduced reimbursements. The repayment comes as a result of 2022’s Supreme Court decision that found CMS made program cuts without following proper procedure.
The 340B program allows eligible hospitals and providers with a disproportionate share of low-income patients to purchase drugs at a cheaper cost but be reimbursed at the prevailing rates by insurers. The hospitals and providers can keep the extra money for the purposes of providing free services to patients.
From 2018 to the third quarter of 2022, certain Outpatient Prospective Payment System (OPPS) 340B providers received $10.5 billion less than they should have in 340B payments compared with what they would have received without the 340B policy. The 340B providers have already received $1.5 billion as a result of processed or reprocessed 340B drug claims for 2022, leaving approximately $9 billion still owed to these hospitals.
CMS has decided to make a 1-time lump-sum payment to each 340B hospital that received less than it should have as a result of cuts to the discount drug program. Approximately 1600 hospitals were affected.
However, in order for the agency to maintain budget neutrality, the repayment will have to come as a result of cutting payments in other areas. CMS is estimating that when finalizing the 340B policy, there was a $7.8 billion increase in payments for non-drug items and services.
“To carry out this required $7.8 billion budget neutrality adjustment, CMS is proposing to reduce future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5% starting in CY 2025,” the agency noted in a fact sheet. “CMS proposes to continue making this adjustment until the full $7.8 billion is offset, which CMS estimates to be 16 years.”
The proposed rule has a 60-day comment period ending on September 5, 2023.
Supreme Court Decision
In June 2022, the Supreme Court unanimously ruled in the case of American Hospital Association v Becerra that HHS’ decision to reduce Medicare payments to 340B hospitals was unlawful because the agency did not conduct a survey of the hospitals’ acquisition costs and set reimbursement rates based on the average acquisition costs.
Instead, HHS set a reduced reimbursement rate of 77.5% for 340B hospitals based on an estimate from the Medicare Payment Advisory Committee. Meanwhile, the reimbursement rate for non-340B hospitals remained the same at 106%. Without a survey, HHS could only legally set the reimbursement rates for each drug based on the average sales price set by manufacturers.
The decision to reduce payments came in 2018 under the Trump administration, and the Biden administration chose to stand by it.
Reactions to the Proposed Payment
340B Health, a membership organization of more than 1500 entities participating in the 340B program, called the proposed rule a “step towards rectifying” the cuts but is still calling on the agency to repay the hospitals with interest.
“We appreciate CMS’s recognition of the need for accountability and their commitment to providing lump-sum reimbursements to affected hospitals,” 340B Health President and CEO Maureen Testoni, said in a statement. “However, we urge CMS to reconsider its proposed remedy of rate decreases for non-drug items, which would represent a financial penalty for many hospitals that had no option for avoiding those payments.”
Both the American Hospital Association (AHA) and America’s Essential Hospitals (AEH) expressed pleasure with the proposed lump-sum payment, but disappointment that the remedy payments would be budget neutral, therefore “ensuring years of future underpayments,” Bruce Siegel, MD, MPH, president and CEO of AEH, said.
“We are especially gratified that HHS agreed with the AHA’s position that these hospitals must be promptly repaid in full with a single lump-sum. At the same time, the AHA is disappointed that HHS has chosen to recoup funds from other hospitals that cannot afford additional Medicare payment cuts, including rural sole community, cancer and children’s hospitals that were initially exempted from HHS’ illegal policy,” Rick Pollack, president and CEO of AHA, said in a statement.