Hospital Orgs to Sue CMS Over 340B Medicare Reimbursement Cuts

November 08, 2017 - The American Hospital Association (AHA), America’s Essential Hospitals, and the Association of American Medical Colleges (AAMC) recently announced their intentions to pursue litigation against CMS to prevent Medicare reimbursement reductions under the 340B Drug Pricing Program.

In a final rule on 2018 Medicare Outpatient Prospective Payment System rates, CMS finalized a policy to reduce hospital payment rates in the 340B Drug Pricing Program. The rates will shift from the average sales price plus 6 percent to the average sales price less 22.5 percent.

The new Medicare reimbursement policy will apply to separately payable, non-pass-through drugs, except vaccines. Sole community hospitals in rural areas, cancer hospitals exempt from Medicare prospective payment systems, and children’s hospitals are also exempt from lower rates.

Under the new payment methodology, CMS anticipates about $1.6 billion in Medicare reimbursement cuts. The federal agency intends to shift the payment reductions to another non-drug services in the OPPS in order to keep the rate cuts budget neutral.

However, the AHA stated that Medicare reimbursement reductions in the 340B Drug Pricing Program threaten care access for vulnerable patient populations.

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“CMS’s decision in today’s rule to cut Medicare payments to hospitals for drugs covered under the 340B program will dramatically threaten access to healthcare for many patients, including uninsured and other vulnerable populations,” wrote the hospital association. “It is not based on sound policy and punishes hospitals and patients for participation in a program outside of CMS’s jurisdiction.”

Hospitals participating in the program agreed earlier this year in a 340B Health survey that payment cuts would impede their organization’s ability to provide services. One health system in Ohio estimated a loss of $3 million in Medicare reimbursements under the new payment methodology.

Medicare reimbursement reductions would cause the health system to eliminate services, such as a substance abuse treatment, cancer treatment, and behavioral health programs.

MetroHealth System Cancer Center in Cleveland, Ohio also told 340B Health that program changes would result in an $8 million loss. The financial loss would cause patient costs to increase as the health system reduced access to transportation and care navigation, which were funded by 340B savings.

Additionally, the lower Medicare reimbursement rates also do not address the root cause of rising prescription drug rates, the AHA explained.

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CMS noted in the final Medicare OPPS rule that the 340B Drug Pricing Program changes will “address recent trends of increasing drug prices, for which some of the cost burden falls to Medicare beneficiaries.”

Hospital spending on prescription drugs continues to grow, with 96 percent of healthcare executives reporting significant increases in inpatient drug spending, a recent Premier survey found. The executives pointed to growing prescription drug rates as the culprit behind growing drug expenditures.

Premier pointed out that the prices for nearly 4,000 generic medications rose by 1,000 percent between 2008 and 2005.

Healthcare organizations should also expect drug spending to increase into 2018. Vizient, a large group purchasing organization, projected prescription drug rates to increase 7.61 percent in the next year for hospitals.

“Contrary to the Administration’s claims, this policy does nothing to address the stated goal of reducing the cost of pharmaceuticals,” the AHA argued. “In fact, the agency’s new policy would actually cause increases in Medicare beneficiaries’ out-of-pocket costs for non-drug Part B benefits.”

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The hospital association added that cutting hospital payments for covered medications does not mean that manufacturers will lower prescription drug rates. Out-of-pocket costs could rise for other Part B benefits as health systems and hospitals reduce their services without 340B savings.

The CMS Advisory Panel on Hospital Outpatient Payment expressed similar concerns in August 2017. The advisory group stated that 340B payment cuts would take from the program to resolve broader Medicare Part B issues, such as increasing prescription drug rates.

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 group argued.

Redistributing savings from the lower Medicare reimbursement rates to other Part B payments and services would be inappropriate, the group continued.

Despite stakeholder concerns with lower Medicare reimbursement rates, CMS chose to finalize the 340B Drug Pricing Program changes. But the federal agency noted in the rule that it may reconsider the policy in 2019. Officials are open to exploring alternative policies that address safety-net hospital needs.