On July 7, 2023, CMS published its highly-anticipated proposed rule identifying its remedy to reimburse hospitals unpaid by its unlawful 340B drug payment policy (the Proposed Rule). While the Supreme Court found CMS’s 340B drug payment policy to be unlawful in 2022, the case was ultimately remanded back to the agency to craft the remedy. In the Proposed Rule, CMS proposes to make a lump sum payment to each affected hospital and purports to pay the difference between what the hospitals should have been paid and what they were paid based on claims data submitted between 2018 and 2022, excluding interest. While the lump sum payments are welcome news for 340B hospitals, CMS also proposed to make a corresponding offset to future Outpatient Prospective Payment System (OPPS) payments to maintain budget neutrality by adjusting the OPPS conversion factor by minus 0.5% starting in CY 2025 and lasting for an estimated 16 years.
Background
Prior to 2018, CMS paid all acute care providers for separately payable outpatient drugs at the rate of average sales price (ASP) plus 6% as required by statute. However, effective in 2018, CMS implemented its 340B rate cut policy to cut the rates for separately payable drugs purchased under the 340B program to ASP minus 22.5%.
A group of plaintiffs, consisting of 340B hospitals and hospital associations, challenged the Secretary’s 340B rate cut in federal court. Plaintiffs were initially successful in district court, which concluded that the Secretary violated the plain language of the statute. The district court’s decision was reversed by the D.C. Circuit. The Supreme Court took review of the case to determine whether the 340B rate cuts were lawful under the statute. On June 15, 2022, the Supreme Court issued a unanimous ruling in American Hospital Assn. v. Becerra declaring that CMS’s 2018 and 2019 reimbursement outpatient drug rate cut to 340B hospitals was “contrary to the statute and unlawful.” The Supreme Court, therefore, reversed the judgment of the D.C. Circuit and remanded the case for further proceedings. The D.C. Circuit subsequently remanded the case to the District Court for the District of Columbia to determine the remedies. The District Court remanded the matter back to the agency without vacatur because of the “potentially disruptive consequences” that would result from vacatur including alleged concerns of budget neutrality and “enormous number of settled transactions” that occurred from 2018-2022—amounting to $10 billion by some estimates—that the agency would need to remediate.
CMS’s Proposed Remedy
Before announcing its proposed lump sum payment to affected hospitals, CMS discussed the different remedy options that it did not adopt for its proposal. As an initial matter, CMS ruled out the possibility of making the remedy payments to affected hospitals without making a corresponding budget neutrality adjustment to the OPPS rates. CMS concluded that “a budget neutrality adjustment is statutorily required and, even if not statutorily required, warranted as a matter of sound public policy.” CMS then considered reprocessing every single 340B drug claim submitted by hospitals during the 5-year period at issue, which CMS deemed was not administratively feasible. CMS also considered making a one-time agreement payment to affected 340B hospitals while at the same time making a one-time hospital-specific recoupment to account for budget neutrality. CMS likewise rejected this approach because of the immediate and large retroactive recoupments that some hospitals would incur. CMS also considered its authority to pay interest on the remedy payments but stated that it does not believe it has the authority to do so.
Under CMS’s current proposal, for each affected 340B covered entity hospital, CMS will calculate the amount the hospital would have been paid under the OPPS from CY 2018 through September 27th of CY 2022 for drugs the hospital acquired through the 340B Program had that 340B policy not been in effect. CMS would then subtract from this amount the amount each affected 340B covered entity hospital was paid under the OPPS for 340B-acquired drugs during the period of CY 2018 to September 27th of CY 2022. CMS would obtain this information from claims data. According to CMS, this proposed additional lump sum payment amount would result in the affected 340B covered entity hospital receiving the default ASP plus 6 percent rate. CMS plans to issue instructions to its contractors to remit payment under these parameters within 60 days of receiving those instructions. CMS anticipates that payments would likely remit by the end of CY 2023 or beginning of CY 2024, if the Proposed Rule is finalized.
CMS’s Proposed Rule is available here and will be published in the Federal Register on July 11, 2023.
