In light of the Supreme Court’s decision in American Hospital Association v. Becerra [142 S. Ct. 1896 (2022)] and the district court’s remand to the responsible federal agency, the Centers for Medicare and Medicaid Services (CMS) issued a final rule outlining the remedy for the invalidated OPPS 340B-acquired drug payment policy for calendar years 2018-2022. CMS published a final rule earlier this month that will act to remedy the payment rates the Court held to be invalid. This final rule will affect nearly all hospitals paid under the Outpatient Prospective Payment System (OPPS).
Section 340B of the Public Health Service Act (hereinafter, “340B”) allows participating hospitals and other providers to purchase certain covered outpatient drugs or biologicals (hereinafter referred to collectively as “drugs”) from manufacturers at discounted prices. Prior to 2018, the Medicare payment rate for Part B covered outpatient drugs provided in outpatient hospitals was generally the statutory default of average sales price (ASP) plus six percent.
In the 2018 OPPS final rule, CMS adjusted the payment rate for 340B drugs to ASP minus 22.5 percent to reflect more accurately the actual costs incurred by 340B hospitals when acquiring 340B drugs. This rate applied from 2018 through approximately the third quarter of 2022. To comply with statutory budget neutrality requirements under the OPPS, CMS made a corresponding increase to payments to all hospitals (340B hospitals and non-340B hospitals) for non-drug items and services, which was in effect from 2018 through 2022.
Before the Bar
Here is a brief review of recent court decisions and subsequent rulemaking that led to the most recent final rule:
- On June 15, 2022, the Supreme Court unanimously ruled that the differential payment rates for 340B-acquired drugs were unlawful because, prior to implementing the rates, the U.S. Department of Health and Human Services (HHS) failed to conduct a survey of hospitals’ acquisition costs under the relevant statute.
- On September 28, 2022, the U.S. District Court for the District of Columbia vacated the differential payment rates for 340B-acquired drugs going forward. As a result, all 2022 claims for 340B-acquired drugs paid on or after September 28, 2022 were paid at the default rate (generally ASP plus six percent).
- In the 2023 OPPS final rule, CMS finalized a general payment rate of ASP plus six percent for drugs acquired through the 340B Program, consistent with the agency’s policy for drugs not acquired through the 340B program.
- As required by statute, CMS implemented a 3.09 percent reduction to the payment rates for non-drug items and services to achieve budget neutrality for the 340B drug payment rate change for 2023. This budget neutrality change ensured the 2023 OPPS conversion factor was equivalent to the conversion factor that would have been in place had the 340B drug payment policy never been implemented.
Provisions of Final Rule
Lump Sum Payments
An additional payment will be made to affected providers for 340B-acquired drugs as a one-time lump sum payment. Based on monies paid and still owed in connection with the program, CMS is making a one-time lump-sum payment to each 340B-covered entity hospital that was paid less due to the now-invalidated policy. The final rule contains the calculations of the amounts owed to each of the approximately 1,700 affected 340B covered entity hospitals.
Beneficiary copayments make up approximately 20 percent of the payments affected 340B covered entity hospitals did not receive due to the 340B payment policy. Because CMS is structuring the remedy as a lump-sum remedy payment, providers are not able to bill beneficiaries for that cost sharing. To account for this, and to ensure that affected 340B providers are put in as close to the same position as if the 340B payment policy had never existed, Medicare is accounting for beneficiary cost sharing within the one-time lump sum payment to affected hospitals. Consequently, affected 340B covered entity hospitals may not bill beneficiaries for coinsurance on remedy payments.
Prospective Offset for Higher Payments for Non-Drug Items
Because CMS is now making additional payments to affected 340B covered entity hospitals to pay them what they would have been paid had the 340B policy never been implemented, CMS is making a corresponding offset to maintain budget neutrality as if the 340B payment policy had never been in effect. To carry out this required $7.8 billion budget neutrality adjustment, CMS will reduce future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5 percent starting in 2026. CMS is finalizing for the prospective offset to start for 2026. CMS will continue this adjustment until the full $7.8 billion is offset, which CMS estimates to be 16 years.
For Medicare Advantage payment, more information is in the Hospital Outpatient Prospective Payment System Update on Payment Rates for Drugs Acquired through the 340B Program – Informational for MAOs memorandum that was issued by CMS on December 20, 2022.
CMS is finalizing that providers that did not enroll in Medicare until after January 1, 2018, and thus did not fully benefit from the increased payment for non-drug items and services from 2018 through 2022, are excluded from the prospective rate reduction.
For a fuller summary of the 340B Drug final rule, please click on the following CMS link: Hospital Outpatient Prospective Payment System (OPPS): Remedy for the 340B-Acquired Drug Payment Policy for Calendar Years 2018-2022 Final Rule (CMS 1793-F) | CMS.
With best wishes,
Senior Vice President—BPO