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Drug Payment Policy: A Proposed Remedy by CMS

July 13, 2023

I’m sure the mercurial Dr. Jekyll and the feverish Dr. Frankenstein felt they were operating under sound medical principles when they first began their eccentric experiments, but their research soon became bigger than the both of them. Sometimes, despite our best efforts, we end up creating a monster. That’s what happened, in a sense, with a certain drug payment program that has taken on a life of its own.

According to a recent publication from the Centers for Medicare and Medicaid Services (CMS), new rules have just been announced that will address the 340B drug issue, which has been in a holding position for several months.

Creating a Problem

Per CMS, Section 340B of the Public Health Service Act 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 the average sales price (ASP) plus six percent. In the CY 2018 OPPS/ASC 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 CY 2018 through approximately the third quarter of CY 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 CY 2018 through CY 2022.

On June 15, 2022, the Supreme Court of the United States (SCOTUS), in American Hospital Association v. Becerra [142 S. Ct. 1896 (2022)], unanimously ruled that the differential payment rates for 340B-acquired drugs were unlawful because, prior to implementing the rates, the U.S. Department of the Health and Human Services (HHS) failed to conduct a survey of hospitals’ acquisition costs under the relevant statute. Following on the heels of the SCOTUS decision, the U.S. District Court for the District of Columbia (DC) vacated the differential payment rates for 340B-acquired drugs going forward. As a result, all CY 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 CY 2023 OPPS/ASC 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 CY 2023. This budget neutrality change ensured the CY 2023 OPPS conversion factor (CF) was equivalent to the CF that would have been in place had the 340B drug payment policy never been implemented.
  • CMS announced that it would address the remedy for 340B drug payments from CY 2018-2022 in future rulemaking prior to the release of the CY 2024 OPPS/ASC proposed rule.

Crafting A Solution

In light of the above-referenced Supreme Court decision and the subsequent district-level court remand to the federal government, CMS issued a proposed rule (PR) on July 7, 2023, outlining the proposed remedy for the 340B drug payment policy for CY 2018-2022. The agency is publishing the PR to rectify the payment rates that the Court held to be invalid. Aspects of this proposed policy will affect nearly all hospitals paid under the OPPS. Below are some of the highlights of the PR.

Lump Sum Payments to Affected Providers for 340B-Acquired Drugs

CMS is proposing to make an additional payment to affected providers for 340B-acquired drugs as a one-time lump sum payment. The agency estimates that, for CY 2018 through the approximate third quarter of 2022, certain OPPS 340B providers received $10.5 billion less in 340B drug payments than they would have without the 340B policy. However, many CY 2022 340B drug claims have been processed, or reprocessed through standard claims processing, at the higher default payment rate since the 340B payment policy was vacated on September 27, 2022. As a result, affected 340B providers have already received from Medicare and beneficiaries $1.5 billion of the $10.5 billion that would otherwise have had to be remedied through these reprocessed claims. For the remaining $9 billion owed to affected 340B providers for claims covering CYs 2018 through 2022, CMS is proposing to make a one-time lump-sum payment to each 340B-covered entity hospital that was paid less due to the now-invalidated policy. The PR contains the calculations of the amounts owed to each of the approximately 1,600 affected 340B covered entity hospitals.

Beneficiary Copayments

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 plans to structure the remedy as a lump-sum remedy payment, providers would not be able to bill beneficiaries for that cost sharing. To account for that fact, 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 proposes to account for beneficiary cost sharing within the one-time lump sum payment to affected hospitals. Under this proposal, affected 340B covered entity hospitals may not bill beneficiaries for coinsurance on remedy payments.

Prospective Offset for Higher Payments for Non-Drug Items and Services

As part of this proposed remedy, CMS proposes to maintain budget neutrality as required by statute. The agency finalized the 340B policy for CY 2018 in 2017 in a budget neutral manner that included increasing payments for non-drug items and services; this payment increase was in effect from CY 2018 through CY 2022. The PR calls for 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 is proposing to reduce future non-drug item and service payments by adjusting the OPPS CF by minus 0.5 percent, starting in CY 2025. Per the PR, CMS would continue making this adjustment until the full $7.8 billion is offset, which CMS estimates to be 16 years.

Beneficiary copayments for non-drug items and services would decrease slightly in upcoming years as a result of the proposed prospective offset to the OPPS conversion factor.

New Providers

CMS is proposing that providers who 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 CY 2018 through CY 2022, would be excluded from the prospective rate reduction.

This PR will have a 60-day comment period, which will end on September 5, 2023. For more information on the provisions of the PR, please click on the following weblink: CMS anticipates issuing the final rule before the CY 2024 OPPS final rule is published this fall.

With best wishes,

Chris Martin
Senior Vice President—BPO

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