Policy & Regulation News

Advisory Group Warns CMS Against 340B Medicare Reimbursement Cuts

The CMS Advisory Panel on Hospital Outpatient Payment opposed proposed Medicare reimbursement rate cuts under the 340B program.

Medicare reimbursement cuts and the 340B Drug Pricing Program

Source: Thinkstock

By Jacqueline LaPointe

- The CMS Advisory Panel on Hospital Outpatient Payment recently called on the federal agency to abandon proposed changes to the 340B Drug Pricing Program in 2018, which would reduce Medicare reimbursement to qualifying hospitals for drugs acquired under the program.

CMS introduced potential hospital reimbursement changes under the 340B program in July 2017. The federal agency proposed to eliminate the current hospital payment structure of reimbursing organizations the average sales price of the drug plus 6 percent.

Instead, the federal agency would reimburse eligible hospitals 22.5 percent less than the average sales price for most drugs obtained under the program.

The proposed 340B Drug Price Program changes aim to “reflect more accurate costs” of separately payable prescription drugs. CMS also intends for the savings from the reduced Medicare reimbursements to remain in the Outpatient Prospective Payment System.

Industry groups generally opposed the hospital payment cuts, arguing that the proposed changes would go against the program’s original intent. CMS designed the 340B Drug Pricing Program to provide financial support to safety-net hospitals that must purchase expensive prescription drugs. The program intends to help hospitals stretch scarce resources as far as possible to reach more underserved patients and provide more comprehensive services.

READ MORE: The Difference Between Medicare and Medicaid Reimbursement

However, reducing Medicare reimbursement under the program would negatively impact a hospital’s ability to provide safety-net services to patients in need.

“The proposed OPPS [Outpatient Prospective Payment System] policy would cripple 340B’s value as a tool for lowering drug prices and disrupt access to care for those in greatest need, including low-income Medicare beneficiaries,” America’s Essential Hospitals wrote. “The proposal also runs counter to Congress’ intent for the 340B program: to help hospitals stretch scarce resources.”

Stakeholders also contended CMS proposals to reduce hospital payments under the 340B program missed the mark regarding challenges with prescription drug spending. The federal agency should focus on mitigating rising drug prices rather than cutting financial support to safety-net hospitals.

Growing prescription drug rates was a major obstacle for 99 percent of healthcare executives. About 96 percent also stated in a recent Premier survey that their organization’s inpatient drug spending either “significantly” or “somewhat” increased over the last five years.

Despite their role as a low-cost alternative, generic drug prices played a major part in growing hospital drug spending. Premier reported that the prices of almost 400 generic medications increased by 1,000 percent between 2008 and 2015.

READ MORE: Hospitals Saw 23% Rise in Inpatient Prescription Drug Spending

In a recent testimony, the CMS advisory group stated that potential Medicare reimbursement reductions would inappropriately take from the 340B program to resolve broader Medicare Part B reimbursement issues, such as drug prices set by manufacturers.

The advisory group argued that the 340B regulation does not require that prescription drug discounts or cost savings for hospitals be directly linked with Part B drug payments.

Policymakers also did not design the 340B program to “directly subsidize or offset inadequate drug payments under Part B, but rather to provide discounts on drugs which could be used to assist safety net providers in the care of uninsured patients, develop community benefit programs, offset the costs of providing access to needed medications for vulnerable patients, and invest in other needed services for their patients.”

The advisory group warned CMS that implementing the Medicare reimbursement cuts would inappropriately redistribute Part B payments, resulting in care access issues.

In an accompanying testimony, MedStar Health shared how hospitals would be affected by lower Medicare reimbursement for Part B services.

READ MORE: Medicaid, Medicare Reimbursement $57.8B Below Hospital Costs

Representing the American Hospital Association (AHA), the Baltimore-based health system explained that seven out of its ten hospitals participate in the 340B program, resulting in roughly $60 million in drug cost savings annually.

With the savings, the health system provides community benefits, including in-home services to over 3,000 vulnerable elderly patients, an after-hours clinic that provides free care at a homeless shelter, subsidies for discharge prescriptions and transportation for underserved populations, and a no-charge clinic in Baltimore for uninsured patients.

“Nationwide, 340B hospitals use the savings they receive on the discounted drugs and reinvest them in programs that enhance patient services and access to care, as well as provide fee for reduced priced prescription drugs to vulnerable patient populations,” wrote MedStar Health.

Health system representatives also stated that hospitals in the 340B program are already underpaid by Medicare. The hospitals have total and outpatient margins of negative 18.4 percent and negative 15.4 percent, respectively.

Additional hospital payment cuts would “be devastating to these hospitals’ missions,” the health system said.

Healthcare stakeholders can comment on the proposed 340B hospital payment reductions until Sept. 11, 2017. CMS expects to respond to comments in a final rule around Nov. 1, 2017.