CMS to Resolve 340B Payment Mixup With $9B Lump-Sum Fix

July 10, 2023 - CMS has proposed to pay $9 billion to hospitals impacted by payment cuts to the 340B Drug Pricing Program between 2018 and 2022.

The proposal is CMS’ remedy to cutting 340B payments from the average sales price (ASP) of covered outpatient drugs plus 6 percent to ASP minus 22.5 percent. CMS previously contended the lower 340B payment rate better reflected the actual costs incurred by hospitals participating in the program, which acquired the discounted outpatient drugs.

However, the Supreme Court unanimously ruled last June that the new payment formula for 340B-covered drugs was unlawful since CMS failed to conduct a survey of hospital acquisition costs prior to finalizing the cuts. The District Court for the District of Columbia then vacated the new payment rate going forward.

CMS has since paid hospitals in the 340B Drug Pricing Program at the rate of ASP plus 6 percent for covered outpatient drugs. The agency has also reprocessed through standard claims processing 340B drug claims for 2022, resulting in about $1.5 billion going back to hospitals affected by the payment rate cut that year.

However, CMS says in the proposed 340B payment remedy rule that it still owes hospitals in the program since certain 340B hospitals received $10.5 billion less in the discount program from 2018 through the third quarter of 2022 than they would have received under the default payment rate.

If finalized, the proposed rule would deliver the remaining amount through a one-time lump-sum payment to each 340B hospitals that were paid less because of the now-invalidated payment cut. CMS states in the rule that approximately 1,600 hospitals would receive the payment.

But the agency would also make a budget neutrality adjustment to the Medicare Outpatient Prospective Payment System (under which 340B claims are processed) starting in 2025.

By law, CMS must maintain budget neutrality under the Outpatient Prospective Payment System and the agency did so when implementing the lower 340B payment rate. CMS boosted payment across the payment system as a result of the 340B payment cuts. However, this resulted in hospitals being paid $7.5 billion more for non-drug items and services from 2018 through most of 2022.

Since CMS plans to make an additional payment to 340B hospitals, the agency proposes to recoup the billions of dollars in excess outpatient payments by reducing the conversion factor by 0.5 percent over the next 16 years.

Providers who enrolled in Medicare after January 1, 2018, and therefore, did not fully benefit from the increased payment rates for non-drug items and services during that time, would be excluded from the prospective rate reduction.

The American Hospital Association (AHA), which sued the federal government over the 340B payments cuts, applauded CMS’ proposed remedy in a statement on Friday.

“After more than five years of litigation and a unanimous Supreme Court victory, the AHA is extremely pleased that 340B hospitals will finally be paid back what they deserve so they can continue providing care to their patients and communities,” said Rick Pollack, AHA president and CEO. “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.”

However, Pollack criticized CMS for recouping funds from other hospitals paid under the Outpatient Prospective Payment System, including rural sole community, cancer, and children’s hospitals. CMS had exempted these types of hospitals from the payment cuts.

340B Health, a trade association representing 340B participants, voiced similar concerns.

“Today’s proposed rule by CMS is a significant step towards rectifying the unlawful Medicare Part B cuts to 340B hospitals. We appreciate CMS’s recognition of the need for accountability and their commitment to providing lump-sum reimbursements to affected hospitals,” Maureen Testoni, 340B Health president and CEO, 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. We also reiterate our call on the agency to repay 340B hospitals with interest. 340B Health intends to file comments with CMS during the public comment period.”

Comments on the proposed rule can be made through September 5, 2023.